Buy to Let Mortgage – How to Determine Your Eligibility
For most people in the UK, buying a property to rent it out is an easy long-term investment and an additional source of income. The UK government have tried several initiatives to make buy-to-let activities less attractive to investors, but they still have a high demand due to their high rental yields. People who buy property to rent it out need a buy to let mortgage instead of the ordinary residential mortgages. You may also need a buy to let mortgage if you wish to remortgage a property that you previously intended to live in but have decided to move out and let it out.
While they may be similar to ordinary mortgages, buy to let mortgages have some differences. This guide is about the credibility criteria for a buy to let mortgage. Read on to know if you are eligible or not.
What do Mortgage Lenders Check?
Obtaining a buy-to-let mortgage in the UK can be challenging due to lenders’ strict eligibility criteria, especially for those without a residential home. Therefore, it is advisable to look for an independent mortgage broker to help you explore the whole market and determine the best lender to approach.
Most lenders in the UK will consider the factors below to determine whether you qualify for their buy-to-let mortgage.
- Income
- Borrower status
- Deposit
- Borrower’s age
- Credit history
- Whether you live in the UK
Buy to Let Mortgage Income Criteria
Most lenders in the UK have a minimum income requirement for you to qualify for their BTL mortgage, more so if you are a first-time landlord. The standard minimum income is £25,000, but you can also find lenders who will accept a lower income or not impose any income requirements. Lenders who do not impose income requirements will most likely base the deal on the property’s rental potential. Most lenders will offer a mortgage deal as long as the property will cover 125-130% of the mortgage payments.
Some BTL providers may also show interest in knowing how you earn your income. Most will prefer a substantial PAYE salary, but you can also find a good deal if you are self-employed or under pension income. If you are self-employed, the lender will most likely ask to see your account statements for the past three years, but some will only ask for two years bank statements or even for a few months. The lender will also consider your outgoings, like outstanding loans.
What Deposit is Needed for Buy to Let?
The deposit for BTL mortgages is always higher than that of residential mortgages. The maximum loan to value ratio for BTL mortgage is 75%, but you can find some lenders offering 80% and 85% if the circumstances allow it. Therefore, you are required to deposit 15% or more for you to qualify.
If you have a bad credit history, the lender is more likely to ask for a larger deposit for their safety.
Buy to Let Mortgage Poor Credit History
If you have a poor credit history, you should look for the most flexible lenders to people in your circumstance. Lenders will also find borrowers with no credit score or a history of late payments high risk. The same applies to those with a county court judgement against them and those with individual voluntary arrangements.
However, you can find special lenders who can handle borrowers with creditability related issues if you use the services of expert advisors. These advisors can help you secure the best deal as they are aware of different lenders’ terms.
Is There an Age Limit on Buy to Let Mortgages?
Age is another factor that a lender may consider when determining if you are eligible for a buy-to-let mortgage or not. The minimum age in the UK is 18, but some lenders may be hesitant to deal with borrowers under 21 or 25. The maximum age of applicants is 75 for some and 85 for others. Some may also have age restrictions in their BTL mortgage criteria.
Property Usage
The planned property usage is also an important factor when determining the eligibility of a borrower. Most lenders will be willing to lend to you if you plan to look for single short-term tenants, but you may need to look for a special lender through an advisor if you plan to use the property as holiday lets, students flat or have multiple occupants.
