Buy To Let Mortgage
A Buy To Let Mortgage is simply a mortgage specifically for a property which is rented out rather than lived in by the owner.
How they differ from home mortgages
The first difference borrowers notice, is the Interest Rate on buy to let mortgages are usually higher than residential mortgages, particularly with UK mortgage lenders. This is beginning to change howeve.
How to Choose a Buy-to-Let Mortgage – Bank Criteria
Buy-to-let mortgages are governed by the same loan to value (LTV) limitations, income restrictions and credit score requiremtns as residential mortgages
Loan To Value (LTV Ratio)
Although this is gradually extending, Buy-to-Let mortgages are limited to 85% with many lenders although there are some lenders who are moving towards 90 & 95% depending on the property’s income potential. Loan to Value is simply the mortgage amount divided by the property value.
Try the calculator
to establish your ratio.
Income Restrictions.
Buy-to-Let mortgages are calculated using the rental potential of the property. This figure is determined by the valuer of the property but sometimes can be over-ridden if there is a tenancy agreement in place which shows higher rent. This has advantages and disadvantages.
How income Ratios are calculated
Basically the rental income needs to be able to service the interest payment on the mortgage at it’s standard variable rate.
Example of Lender Ratios:
Borrowing £100,000 fixed at 5.16% for 2years with a SVR of 7.86%
Interest Only Mortgage payment would be £430/mth
At the Standard Variable Rate the payment would be £654/mth
Therefore lenders would require a rental income of MINIMUM of £654/mth
Work out how much you could borrow based on a property’s rental income. Use our
buy to let mortgage calculator
Rental income ratios.
Mortgage Lenders express rental income lending as a percentage of the rental income.
i.e. they’ll lend at 100%, 110% or 125%
So with rental income of £550/month.
Maximum lending (assuming 7.5% SVR)
at 100% - maximum loan would be £88,000
at 110% - maximum loan would be £80,000
at 125% - maximum loan would be £70,400
As you can see there is a large difference so comparing buy-to-let mortgages is essential
Note: It still must fit within the LTV ratio as well. Whichever is the lower amount.
Advantages of Rental income ratios.
- The biggest advantage is that many buy-to-let loans are solely based on rental income which means you don’t have to prove your other income. This is a huge advantage for self employed people or those with a portfolio of properties.
- The other big advantage is that if rental income supports the mortgage then often other debts are ignored.
Disadvantages of Rental income ratios.
The biggest disadvantage of this method is that often it severely limits lending on larger properties.
Many borrowers get around this by supplementing the rental income from personal income, but this can be difficult if you can’t prove income or have income from many sources which may require a
self certify mortgage.
back to top of Buy To Let mortgages
Return to home www.key-mortgage-secrets-revealed.com
|
