Buy-To-Let Mortgage Eligibility Criteria
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If you’re looking to invest in the rental market, a buy-to-let mortgage could be the ideal start to your journey, however, they are fairly complex products that are best approached under the guidance of an expert.
In this article, we’ll look at the lender criteria for this type of mortgage, how they vary, and how to find a suitable lender for your circumstances.
In this article:
- What is the eligibility criteria for a buy-to-let mortgage?
- How affordability is assessed by lenders
- How a broker can help with buy-to-let mortgage requirements
- What are the minimum and maximum amounts you can borrow?
- Eligibility criteria for Portfolio Landlords
- Can you get a buy-to-let mortgage if you don’t own a property?
- Speak to a broker
What is the eligibility criteria for a buy-to-let mortgage?
Criteria for buy-to-let mortgages vary by lender, but there are some general factors that most will look at. They largely fall into the following categories:
- Minimum rental yield – One of the most important factors in your mortgage approval will be the rental potential of the property you’re buying. It’s generally expected that your rental income will be used to make the mortgage repayments, and therefore, lenders may want a forecast of rental income from an ARLA (Association of Residential Letting Agents) registered letting agent. See How affordability is assessed by lenders for more detail.
You can use our calculator below to work out the potential rental yield for the property you’re looking to buy:
Rental Yield Calculator
This calculator will show you the rental yield on your buy-to-let property using either the original purchase price, plus associated costs, or the current value. All you need to do is choose which option you want to base your calculation on and your monthly rental premiums.
Gross Rental Yield:
Net Rental Yield:
Now you've worked out what your current rental yield is, why not speak to a broker to see what buy-to-let mortgage/remortgage opportunities are available? With their expertise in this market they'll be able to identify a range of new deals which could reduce your mortgage payments and, as a result, improve your overall rental yield.
- Minimum income – Personal affordability doesn’t play as significant a role here as it does with residential mortgages, because it’s not used to determine how much you can borrow. That said, many lenders in this niche have a minimum income requirement, which typically ranges between £25k-£30k.
- Employment status – How you earn your money is not hugely important to most lenders, so long as you’re able to prove your income. Plenty of lenders are happy to accept self-employed applicants, after all, being a landlord in itself, is a form of self-employment.
- Age – The majority of lenders impose a minimum age of 21-25. Read more in our guide to buy-to-let age limits.
Of course, there are also maximum age limits on many products, so you’ll typically need to have finished repaying the mortgage by age 75-86. That said, not all lenders have an upper age limit, and lenders tend to be less concerned with age if your mortgage is taken via a limited company.
- Credit history – Adverse credit can be a stumbling block, however, the age, severity, and amount of any credit issues will play a big part in the lending decision, and less severe issues may be overlooked. There are specialist BTL bad credit mortgages, available if you’re concerned about the impact your credit history could have on your application.
- Property type – Each lender has preferences when it comes to which properties they are willing to finance. For investment properties, in particular, many lenders steer clear of non-standard construction properties, but some can be more flexible.
If you’re looking at HMO (House of multiple occupancy) properties, again, not all lenders are happy to lend on these, especially the larger HMOs that require a license. There are absolutely lenders willing to provide mortgages for HMO properties, however, it’s simply a case of finding them.
- Property location – How much the lender focuses on location will depend on your intended use of the rental property. If you plan to offer AST (Assured shorthold tenancy) only, then the location won’t be too much of an issue, so long as the property value is fair for the area.
If you’re looking at potentially letting out the property to students or holidaymakers, not all lenders will be comfortable with this type of tenancy, as they’re considered a higher risk, despite both having the potential to result in a higher ROI than traditional buy-to-lets. Holiday lets are generally seasonal too. The location will also be of more significance to the lender, as they will want to be certain you’ve chosen an area where this type of property is in high demand.
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How affordability is assessed by lenders
Buy-to-let loans and the amount you can borrow are determined by the level of rental income the property you’re looking to buy is able to accomplish, rather than your personal income. This is how it works:
ICR (Interest Cover Ratio)
The vast majority of buy-to-let mortgages are offered as interest-only products, which means that an additional test, known as the ICR test, will play a role in the affordability assessment.
Typically, lenders will be looking for your property’s rental income to achieve 125-145% of the loan repayments, and to be comfortable that you would still be able to afford mortgage payments when there are no tenants in situ. To further ‘stress test’ this, they will use a higher interest rate (usually 2% above the actual rate or 5.5%, whichever is higher) as the basis for their calculations.
Some lenders may be willing to consider your personal income alongside the rental potential of the property as a part of the affordability assessment, rather than as simply a backup for stress testing purposes. This will only usually apply to those with a substantial personal income, but may provide some applicants with the opportunity to increase their borrowing.
This concept is fairly niche, and only a small number of lenders will take this approach to affordability, however, if you think it may apply to you, a broker will be able to help you find a suitable lender.
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How much deposit do you need?
You’ll usually need a larger deposit for a buy-to-let, and whilst this will vary to some degree, depending on the lender, your circumstances, and the property type, it’s unusual to see a requirement below 25%. A handful do exist but expect to pay higher rates for them.
You can read more about this topic in our guide to buy-to-let mortgage deposits.
How a broker can help with buy-to-let mortgage requirements
As demonstrated, the criteria are fairly extensive and can vary considerably depending on the lender and circumstances surrounding your purchase. This can make it very difficult to find a lender with a set of criteria that you can fully match.
A mortgage broker with specific experience in arranging buy-to-let mortgages will know how to navigate the landscape of lender requirements and match you with a suitable lender, whether you’re a first-time landlord or already have extensive experience.
If you’d like to speak with a buy-to-let expert we work with, get in touch now.
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What are the minimum and maximum amounts you can borrow?
Most mortgage products have a minimum loan amount, and this varies from one lender to the next, but tends to range from £50,000-£75,000 in the case of buy-to-let products.
At the other end of the scale, there doesn’t tend to be a maximum monetary value, it’s more based on maximum LTVs (loan to value) which is typically 75%, hence the 25% deposit requirement.
If you’re buying a significant development, perhaps a large HMO, that is valued at £5 million or above you will typically be looking at commercial mortgages, rather than traditional buy-to-let products.
Our buy-to-let calculator will help you get an idea of how much you could borrow based on the rental potential of your property.
Buy-to-Let Mortgage Calculator
Our buy-to-let mortgage calculator can show you how much your mortgage could cost you each month and overall. Simply enter the rental property value, deposit, anticipated monthly rent, interest rate, mortgage term and our calculator will do the rest.
Capital and repayment:
Loan to Value ratio (LTV):
Most lenders won't offer buy-to-let mortgages over a LTV of 80%.
Interest Cover Ratio (ICR):
Most lenders require rental income to be at least 125%-145% of the interest repayments for a buy-to-let mortgage.
Get started with a specialist buy-to-let broker to find out how much they could help you save on your monthly mortgage repayments.
Eligibility criteria for Portfolio Landlords
A portfolio landlord is defined as someone that has 4 or more properties in their portfolio with active mortgages. Those properties that are owned outright are not considered part of your portfolio for the purposes of mortgage criteria.
You can read more about this topic in our guide to buy-to-let portfolio mortgages.
Can you get a buy-to-let mortgage if you don’t own a property?
It’s possible, although it can be harder for a first-time buyer to secure this type of mortgage. There are far fewer lenders willing to lend to non-homeowners, however, there is a growing realisation within the industry that buy-to-let can be a simpler path onto the property ladder for some borrowers.
See our guide to first-time buyer buy-to-let mortgages for further information.
Speak to a buy-to-let mortgage broker
Our free broker-matching service will pair you with a buy-to-let expert with strong experience of securing mortgages for all types of investment property and all types of investor. Simply call today on 0808 189 2301 or make an enquiry to set up your initial, no-obligation discussion about your goals and the options available.
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