Buy To Let Mortgage Criteria

When you are taking out a buy to let mortgage, it can sometimes seem overwhelming, with lengthy contracts, unreadable paperwork, made worse by liberal amounts of financial jargon. Eligibility criteria will vary from lender to lender, which can be very frustrating and time consuming.

In this article we demystify the key aspects of checking whether or not you may be eligible for a buy to let mortgage.

Contents

Borrower-based criteria

This article is aimed at individuals who wish to take out a BTL mortgage. It does NOT cover the application criteria applied to limited companies.

Age limits

To get a buy to let mortgage you need to meet both minimum and maximum age requirements.

Minimum age: Unlike a regular mortgage that requires you to be 18 years of age, you need to be at least 21 years old to be eligible for a BTL mortgage.

Maximum age: You shouldn’t be older than the upper age limit, which is usually 70 to 80 years, at the end of the mortgage term.

Home ownership

You must own your home, either with an outstanding mortgage or outright.

Miminum income

You need to meet the following affordability criteria while applying for a buy-to-let mortgage.

Most buy-to-let mortgage providers require applicants to have £25,000 of minimum annual income. However, some lenders offer BTL mortgages to people with lower annual incomes than that.

You can also find providers offering BTL mortgages with no minimum income requirements. They offer a BTL mortgage deal based on the potential rental income of the property you’re interested in buying.

BTL mortgage providers can also consider your spending while assessing your eligibility. If you have any outstanding loans and need to pay for them on a monthly basis, the lender will offset your annual income against that.

Let’s suppose you earn £30,000 annually but also need to pay £10,000 against your outstanding loans each year. In such a case, you won’t be able to obtain a BTL mortgage deal from a lender, which requires you to have £25,000 of minimum annual income.

Sources of income

BTL mortgage providers can also take your income sources into account. A handsome PAYE (Pay as You Earn) salary is one of the most desirable sources of income for BTL mortgage lenders.

But it certainly doesn’t mean that you can’t find good BTL mortgage deals if you have a different income source. You just need to make sure that you meet the minimum income requirements.

Credit history

You should have reliable credit history and a good credit score to be eligible for a BTL mortgage. Not only can a poor credit history decrease your available mortgage options but it can also increase your minimum deposit requirements.

The good news is that there are specialist lenders who offer buy-to-let mortgages to people with a low credit score or no credit history. However, they have stricter affordability and minimum deposit rules. 

Nationality

The BTL mortgage nationality criteria vary from provider to provider. Most buy-to-let mortgage providers don’t entertain people who are not UK nationals and don’t live in the UK.

Some companies offer BTL mortgages to non-EEA (European Economic Area) nationals if they have a legal right to live in the UK. However, non-EEA nationals must show their income sources with legal proof and documentation.  

Property-based criteria

Interest cover ratio

Most buy to let mortgages work on an interest-only basis. It means you only need to pay interest on a monthly basis and not the capital amount.

Due to Bank of England requirements, lenders require that the expected rental income must be 125% higher than your monthly mortgage payments. Some lenders even want it to be as high as 145%.  This is to ensure that the property is self funding i.e. it is expected that the property will generate positive cash flow when rented out.

So, it’s advisable to contact a letting agent to find out the average rent rates of rental properties in your area beforehand.

Keep in mind that you’ll still need to pay your monthly repayments even if you don't have any tenants and your rental property isn’t generating any income.

You’ll need to repay the original loan in full at the end of your mortgage term.

Minimum property value

The property will need to have a valuation of at least £50,000.

Minimum deposit

A BTL mortgage typically has higher minimum deposit requirements than a residential mortgage. They also have much higher fees and interest rates. The minimum deposit that you need to pay for a BTL mortgage can range from 20 to 40% percent of the value of buy-to-let properties. Usually, it’s 25%.

Condition of the property

The property must be habitable upon purchase.

Restriction on usage

The property bought with a BTL mortgage can only be used for certain types of tenancies, such as AST or assured short-hold tenancies. Most lenders will offer you a BTL mortgage if you’re planning to use the buy-to-let property for single assured short-hold tenancies.

The property must not be a House in Multiple Occupancy (HMO), e.g. a student let

Bear in mind that the FCA (Financial Conduct Authority) doesn’t regulate BTL mortgage lending.  However, there are some exceptions, like consumer BTL mortgages that follow the same rules as residential mortgages. You can get this type of buy-to-let mortgage when you want to let the property to your sibling, parent, grandparent, child, civil partner, or spouse.

Concluding Thoughts

We hope that this article has clarified the somewhat opaque and confusing criteria which borrowers apply to buy to let investors.

Peter D Doherty

Peter D Doherty is the founder of the Property Investor Academy.

A Masters graduate in accounting and finance from Dublin City University, Pete worked in the City of London for 14 years. He held senior finance roles (Financial Controller) in several substantial UK commercial banks. He is a graduate of Macquarie University.

With over 10 years property investing experience, he is the owner of a London based lettings agency as well as proptech consultancy. He regularly contributes to online landlord forums such as Propertytribes and Reddit.  Peter is a member of National Residential Landlords Association (“NRLA”).

https://uk.linkedin.com/in/peter-doherty-tal
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