Four Key Factors to Consider When Applying For a Investment Property Mortgage UK
In this article, we are going to be covering what a Mortgage lender will look at when considering your buy to let application.
Firstly, this article is for information purposes only and does not constitute advice. It is important to sit down with a financial advisor or a mortgage broker to run through your individual circumstances.
How do I qualify for a buy to let mortgage?
In our opinion obtaining a buy to let is based upon 4 key factors: 1) Individual Circumstances 2) The Property Itself 3) Rent Income 4) Loan To Value
It is a lot easier if you are a Homeowner or already own a buy to let property. If you are a first time buyers looking to purchase your first property as a buy to let, this is more difficult but it is still achievable. In essence the mortgage lender needs to feel comfortable that you are not purchasing a buy to let to live in, so one of the checks they will do for First Time Buyers is an affordability assessment. This is effectively an acid test to see if you wanted to buy the property via a residential mortgage then you could afford to? Other elements to consider are your credit history and personal income – most lenders require a minimum of £25K per annum.
What type of property is it will determine if certain lenders are happy to lend against it
- How the property is let – a single let, a HMO or serviced accommodation unit, multi unti block or commercial property.
- What material the property is made from for instance standard build, non standard construction etc
- The structure of the property – Is it a single house? Or for instance if you’re buying a house that has been split into 2 flats on one title then this may not be something every lender is comfortable with.
The amount you can borrow isn’t based upon your income like a residential mortgage, it is more based upon the specific rent achievable for the property you are looking to purchase.
Who decides how rent is calculated? The lenders will assess the rental levels that your property is going to generate. This is done by sending a RICS accredited surveyor to value the property as part of your mortgage application. The surveyor will look to determine the property value, anticipated rental income based upon local comparables along with highlighting what rental demand is like within the local area.
In essence the rent will determine how much you can borrow based upon individual lenders rental stress tests. These differ from lender to lender and often by taking out a 5 year fixed rate will reduce the stress test amount as opposed to a 2 year fixed rate.
Loan to value
Generally most investors look at 75% loan to value which is 75% of the property value. However there are lenders that offer 80/85% however these tend to come with higher rates and you may need to meet additional criteria to qualify.
So to recap, lending is based upon 4 key components: Your circumstances, the property, rental income and the loan to value.