Using Rental Income to Qualify for a Mortgage

Yes, if you’re a professional landlord, most lenders accept the income you receive from your rental portfolio as the primary source when determining your eligibility.

As with all mortgages, lenders are predominantly concerned with your affordability status, meaning how well you might be able to make the repayments in a stable and risk-free manner.

Lenders recognise some people will not have another source of income like a regular salary if they live off the means of their properties, or if they do, it might be irregular or a low income, and therefore not reflective of their overall economic worth and ability to pay back their debt. By allowing rental income to be considered for a person’s own residential mortgage, they are acknowledging that there are situations that are not one-size-fits-all when it comes to borrowing.

Despite mitigating circumstances being on the table for landlords, lenders will be more scrupulous and vigilant, expecting solid evidence of your income and accounts.

There are several different allowances and rules regarding proving your affordability and borrowing this way, and each lender has its own set of parameters. This is where it can get complex, so it’s advisable to get a specialist broker on your side, like the ones we work with, to help you understand the intricacies of the application process.

The portion of your mortgage that can be based upon your rental income will depend on a number of factors, including:

• How long you have been a landlord for
• How many properties you own
• Your ability to provide evidence via tax calculations
• If you are a professional or casual landlord
• Details of all property values and outstanding mortgage amounts

For example, Loughborough Building Society can accept 50% of your buy-to-let income if you have two or fewer properties or 100% if you have three or more. Hinckley and Rugby Building Society can offer an 80% loan-to-value ratio mortgage if you have documentation showing the latest two years of tax calculations, but it will stretch to 100% if you have three or more years under your belt.

Some lenders only accept this kind of borrowing via a self-employed policy or income (Accord and Barclays). Others will look at your two-year average profits and decide on 75% of these ‘to allow for fluctuations’ (Buckinghamshire Building Society), while other lenders stipulate that they can only base rental income derived from properties in a limited company name.

This depends on many different factors and benchmarks set out by individual lenders. However, using our affordability calculator, you can get a better idea of where you might stand. While it cannot replace in-person advice or consider the many nuances of rental income and affordability, it can help you get the ball rolling.

Most mortgage lenders initially use a multiple of your annual income before deciding how much you can borrow. All you need to do is input the annual rent you receive (or use the percentages outlined in the previous sections) to get an idea of how much you can borrow.

The typical bank statements and payslips are inadequate for this affordability verification.

To prove your declared profits, you will need to get your hands on the past two or three years’ worth of:

• SA302s (self-assessment tax returns)

And/or any of the following:

• Tax year overviews
• An accountant’s reference/certificate
• Details of the rental contract being used
• HMRC tax assessments
• Full details of property portfolio
• Any evidence of tax liability outstanding

HSBC, Nationwide, Barclays, and NatWest, as well as smaller lenders such as The Mortgage Lender, Vernon Building Society, Livemore Capital, and Digital Mortgages by Atom Bank, will all consider mortgage applications where rental income has been included as part of the affordability assessment.

In most cases, the necessary documentary evidence can be provided by SA302 tax overview statements and recent bank statements showing the rental income deposits.