How to use your personal income to top up a buy to let mortgage

We have talked a lot recently about lenders tightening their buy to let mortgage criteria especially with regard to rental income requirements – this is set to continue under the Prudential Regulatory Authority (PRA) recommendations which are expected to be implemented later this year.

For a quick recap – lenders a few years ago would require rental income to exceed the monthly payment on the mortgage by about 125%. If your mortgage was £100k and the interest rate 3%, the rental income would need to be at least £312 per month. (£100,000 x 3% x 1.25% divided by 12 months).

Over the last year or so, with a few exceptions, the rental calculation on buy to let mortgages have become much tighter, the calculation being 125% based on a notional 5%, rather than the actual interest rate being paid. So, a £100k loan would require a rental income of £520 per week. (£100,000 x 5% x 1.25% divided by 12). This is quite an increase and has limited the amount of debt available to buy to let investors. (There are some lenders who will still allow 125% at pay rate but these are very rare…)

We have already seen the 125% increase as a result of taxation and other regulatory pressures – some now require rental income to exceed 145% based on 5% or even 5.5% (100k would need £664 per month), and this is where the entire market is heading (which is why we have been telling you to refinance now if you need to!)

All of these problems have been further compounded by increasing capital values and low rental yields, especially in central London, where few properties can achieve a buy to let loan much higher than 55% in the whole – that’s a conversation for another time though.

The ‘mortgage amount based on rental income’ is a very narrow criterion, somewhat entrenched, and on the whole, fails to take into account the wider circumstances of the borrower – wealth, experience, income, other assets and so on. It’s clear that some evolution is needed in this market if it is to survive.

So – with all this in mind – let me explain to you our dazzling product of the week:

A buy to let mortgage based not only on rental income!

One of our favourite lenders has a very small and hidden criterion which can drastically increase the level of debt you can achieve on a buy to let mortgage, if your personal circumstances allow it.

It works like this. The lender:

  1. Works out what they would normally lend on a buy to let based on 145% at 5.5%
  2. They look at your personal income (good range of UK taxed sources accepted)
  3. They note the level of mortgage on your home, other debts and commitments
  4. They run all this though a calculator then,
  5. If you have excess income after your total expenses, they will lend you more on the buy to let!

Not rocket science when you think about it; just a little more work and a bit more thought.

This was previously more common in the old days and is how a lot of private banks will operate – looking at your total income, assets, rental income and more, then determining a sensible amount to lend you as a whole.

But – advances like this are more than welcome – especially when you see the interest rates that they are lending at – even up to 75% loan to value.

We have a few ways of achieving higher gearing on buy to let properties and it doesn’t always involve a sky-high interest rate.

ARTICLE BY

Natasha Tulett

MARKETING EXECUTIVE

 

Enness Private

We arrange large mortgages secured against international property for global individuals.

You May Also Enjoy

Planning disputes on new build land
Estate Agent Talk

Planning consultations for major infrastructure to be streamlined

Robert Bruce, a planning and infrastructure partner at law firm Freeths LLP, said he: “Welcomed the change as a significant step to speeding up the DCO process and the focus on the quality and effectiveness of the consultation, rather than box ticking and a risk averse approach to pre-application consultation due to the current legal…
Read More
Breaking News

‘The property ladder pulls further away’ warns Open Property Group

For many first-time buyers across England, the dream of homeownership continues to slip further out of reach. Despite rising wages, soaring house prices are making it harder than ever to get on the property ladder. A leading UK professional house buying company ‘Open Property Group’ based in Buckinghamshire UK, has raised concerns over the ongoing…
Read More
Estate Agent Talk

How Long It Takes to Buy a House in the UK: 5 Common Delays That Can Slow Down Your Home Purchase

Wondering how long it takes to buy a house in the UK? The average timeline ranges from 8 to 22 weeks, but even that can stretch significantly due to unexpected delays, especially if you’re a first-time buyer or caught in a chain. That’s why working with experienced professionals like Belvoir — one of the UK’s…
Read More
Love or Hate Rightmove
Breaking News

Rightmove to host Renters’ Rights Bill webinar with Guild of Lettings

Rightmove is hosting a live and interactive webinar session with the Guild of Lettings to help agents get Renters’ Rights Ready. The webinar will take place from 10:00am – 11:00am on Wednesday 23rd April. Susie Crolla, Managing Director for the Guild of Lettings, will be joining Rightmove to help agents with questions they may have about…
Read More
Breaking News

Mortgage completions surged 50 per cent in March amid race to avoid higher stamp duty

March saw highest volume of mortgage completions recorded since September 2021 Homebuyers report now needing an additional £13,530 on top of the property price to cover taxes and fees Three in four have seen housing costs rise, up £126 on average per month Renters’ confidence in their ability to purchase a property within five years…
Read More
Love or Hate Rightmove
Breaking News

Average two-year fixed mortgage rate for 60% LTV now cheaper than five-year rate

The average two-year fixed mortgage rate for those with a 40% deposit (60% LTV) is now cheaper than the average five-year fixed equivalent, the first time this has happened since the mini-Budget The average two-year fixed, 60% LTV mortgage rate is now 4.18%, while the five-year equivalent is 4.19% The gap between average two-year fixed…
Read More