Buy to let mortgage criteria
Published 28th November 2017
Buy to let mortgages can be difficult to obtain, especially for those borrowers who have never dealt with one before. Not only do lenders have different types of rates, they also occupy different areas of the market, and change their criteria to cater for different types of applicant. For example, some lenders will allow buy to lets through Ltd companies, others won’t. Some lend to customers with poor credit history, where others only accept clean credit customers. There really is a whole range of lenders and options available, so if you’ve been declined by one lender don’t give up hope – you’ll just need a specialist buy to let mortgage broker to guide the way.
To find out which buy to let mortgages you’re eligible for enquire now, or for more info about the different criteria and to establish what’s possible for you, read on...
- Age: Minimum age for all buy to lets is 18, although some lenders don’t accept applications for those under 21, or 25. Maximum age can differ, but currently there are lenders who go up to age 75, some to 85, and others that have no maximum in the right circumstances.
- Borrower status: Are you a... (Each status will effect which products and lenders you are eligible for. Usually the first time buyers find it more difficult than professional landlords as the risk of default is greater, but that’s not to say all lenders offer mortgages to those with large portfolios either – many lenders limit the amount of borrowing an individual can have to 4 or 5 mortgages, some have higher limits, others actively lend to experienced landlords and have no limit.)
- First time buyer looking for a buy to let (never owned a property)?
- First time landlord looking for a buy to let (currently own a residential property but no BTLs)
- Experienced landlord (currently own at least one buy to let)
- Professional landlord (currently own multiple let properties)
- Location of residence: Usually lenders will require all borrowers on the mortgage to be residing in the UK. This means that many expats often struggle when looking for buy to let mortgages as an investment while they are away, or in fact even when they have returned. Some lenders do allow expats to purchase property in the UK, and on buy to lets even if they are based abroad, but only in certain circumstances where they look like a safe bet in general.
- Credit history: Generally, a poor credit history can cause real problems with mortgage lenders, but some are more flexible than others and can offer lending at decent rates to those who may have had problems in the past. It depends on the severity of the issues and how recent they are. For buy to lets with bad credit the criteria is much the same as for residential mortgages, but with fewer lenders to choose from those who could apply for a residential may find they can’t get a buy to let. Below is our bad credit criteria guide to give you an idea of the likelihood of an acceptance with various credit issues (Note, this is not exact science, just an indication based on the opinions of our advisers).
Un-secured (finance not secured against a property i.e. mobiles, credit cards, personal loans etc).
|0-12 months||1-2 years||2-3 years||3-4 years||4+ years|
|Late payments||Yes (If under 4 late)||Yes (If under 4 late)||Yes (Any number)||Yes (Any number)||Yes (Any number)|
|CCJ’s||Yes (If under £1000)||Yes (If under £2500)||Yes (Any value)||Yes (Any value)||Yes (Any value)|
|Defaults||Yes (If under £1500)||Yes (Any value)||Yes (Any value)||Yes (Any value)||Yes (Any value)|
|Debt MGMT||Yes (see note*)||Yes (see note*)||Yes (see note*)||Yes (see note*)||Yes (see note*)|
|IVA||Unlikely||Unlikely||Maybe (If good LTV)||Yes||Yes|
|Bankruptcy||Unlikely||Unlikely||Maybe (If good LTV)||Yes||Yes|
*For debt MGMT: Debt management plans sometimes don’t effect your credit file, in these inctances some lenders are happy to consider an application. Often though, the establishemnts you owe money to, will slap a default on your file the month after the agreement has been reached – something debt scheme companies dont always share with you! So, if you are in debt management plan and looking for a mortgage, get a copy of your credit file here and send it over to one of the specialists we work with, and they will let you know the likelihood of you being approved.
Secured (finance secured on a property such as a mortgage or secured loan).
|0-12 months||1-2 years||2-3 years||3-4 years||4+ years|
|Late payments||1 (if only issue)||1/2 (if only issue)||Yes (Any number)||Yes (Any number)||Yes (Any number)|
|CCJ’s||Unlikely||Maybe (If good LTV)||Maybe (If good LTV)||Yes (Any value)||Yes (Any value)|
|Defaults||Unlikely||Maybe (If good LTV)||Maybe (If good LTV)||Yes (Any value)||Yes (Any value)|
|Reposessions||Unlikely||Unlikely||Maybe (If good LTV)||Yes||Yes|
- Ltd companies:
Some of our visitors like to take their buy to let mortgages through a limited company rather than in their personal names, to cash in on some of the added tax benefits that come with being a company director receiving dividends rather than additional gross personal income. This is especially beneficial for those who are high earners paying higher rates of tax, where any additional income would be charged at 40 or 50% tax, but is only subject to 10% as a dividend. Because of the nature of buy to let mortgages and limited companies, the company carries all liability. So should the mortgage go unpaid and the property be repossessed, the borrower’s credit files are not effected as they are not personally liable (unless they have given personal guarantees). As a result many lenders aren’t comfortable lending to ltd companies because of the perceived increased probability of something going wrong. One or two lenders still occupy this area of the market and offer competitive deals, but may ask for personal guarantees from the borrowers to further secure the lending – that way they reduce this risk, but the borrower can still benefit from the tax benefits.
- Property type: The type of property you want the buy to let mortgage on will play a part. Most lenders are fine with the main core of property type, so standard terraced/semi/detached properties and purpose built flats. It may take specialist lenders however, to consider lending on properties such as studio flats, or ex council built properties, especially for buy to let purposes where the risk to the lender is seen as higher. Usually though, if the property is structurally sound then there’s a lender who will consider it, but more specialist lenders will understandably charge higher rates.
- Purchase price: Minimum purchase values exist for a lot of lenders, usually this is at 40-50k, although some have higher minimums at 90k, others have no minimum.
- Deposit: Maximum loan to value (LTV) for buy to lets is 80% in most applications, but these are usually reserved for experienced landlords with existing let properties. For everyone else, the maximum LTV is 75%. So for a £100k purchase experienced landlords would need £25k, and everyone else £25k. Further deposit may be required for those with credit or affordability issues.
- Affordability: This can be rather complex and difficult to get your head around, but basically affordability depends on rental income covering the mortgage payments by 125-130%. The way this is calculated is different with each lender - See our buy to let mortgage broker article for more advice on how much can you borrow, and how buy to let affordability works.
- Construction material: The material of build can effect which lender will consider your application. Buy to let mortgages on concrete properties, timber, thatched, reconditioned, converted barns etc., anything not brick or stone walls and slate or tile roof is classed as non-standard, and therefore higher risk. Certain lenders specialise in these properties, and they change depending on how unique or obscure the material is.
- Property location: UK locations are generally accepted by most lenders, however some restrict lending to just England & Wales, some refuse to lend in Ireland, and others allow Scotland where some restrict postcodes and don’t lend on properties way out in the sticks of Scottish highlands and islands.
- Property usage: Standard lets (Single assured short-hold tenancies (AST’s) to professionals or families) are generally covered by all buy to let lenders. More specialised lenders may be required for buy to lets for houses with multiple occupants (HMO’s), properties with individual flats or rooms, and other types of usage such as holiday lets or semi-commercial setups. The rates tend to follow the risk again, and can be slightly higher in more specialist lending conditions.
The type of tenant can play a major part in which lenders will accept your application. Single contract AST’s to professionals or families are the bread and butter of most lenders, where many high street banks refuse more complex arrangements such as HMO’s, Short term tenancy agreements, and other non-standard contracts. Many lenders refuse to lend on properties to be let to students, or those receiving DSS rental support from state benefits. So long as it’s an AST, the rates tend to be similar to high street deals, but anything else tends to come with slightly higher rates, if not just because of the lack of choice in the market.
For more info on questions like ‘how does buy to let work?’, visit our guide on buy to let mortgages explained. If you are ready to make an enquiry to find out which mortgages you’ll be eligible for, get in touch below…
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