In this brief guide, we are going to discuss the buy to let mortgage eligibility criteria which are important if you plan to get a buy to let mortgage.
The buy to let mortgage eligible criteria below doesn’t necessarily determine how all mortgage lenders may view you and assess your buy to let mortgage affordability but it simply is a blanket guide on how most buy to let mortgage lenders may view a mortgage borrower.
What is the buy to let mortgage eligibility criteria?
When considering the buy to let mortgage eligibility criteria we will look at these 5 main factors:
- Your income and expenses
- Your mortgage deposit
- Your credit history
- Your experience and circumstances
- Your age
- What you use the Property for
Your income and Expenses
When considering your buy to let mortgage eligibility criteria, your income and mortgage affordability are a big factor.
Most buy to let mortgage lenders will insist that you have a minimum income of £25,000 but this may increase based on the size of your buy to let mortgage and if you are a first-time buy to let buyer.
There are other buy to let mortgage lenders who will accept a much lower personal income and some buy to let mortgage lenders who don’t have any income requirements at all.
These buy to let mortgage lenders focus more on the property’s ability to cover the monthly mortgage repayments and any potential shortfall in rent by imposing a rent coverage ratio of 125%+.
If you are a higher tax rate payer you can expect the rental coverage ratio to be much higher.
For the BUy to let mortgage elders who have income requirements they will expect the majority of your income to be through PAYE and most buy to let mortgage lenders may not take a high percentile or any percentile of your supplementary income.
Supplementary income would include:
- Pension income
- Investment Income
- Overseas earned income
- Maintenance Payments
- Rental Income
- Attendance Allowance benefit
- Carer’s Allowance benefit
- Child Benefit
- Child Tax Credit benefit
- Disability Living Allowance (DLA)
- Incapacity Benefit (IB)
- Industrial Injuries Benefit (IIB)
- Maternity Allowance benefit
- Pension Credit benefit
- Severe Disablement Allowance
- Widow’s Pension benefit
- Working tax credit benefit
This being said, there are buy to let mortgage lenders who will accept self-employed borrowers and those who have a high percentile of their income a supplementary income.
If you are a borrower who fits these criteria then it may be important to find a buy to let mortgage broker who could look into the various buy to let mortgage eligibility criteria and find you a suitable mortgage.
What do you need to evidence your income for a buy to let mortgage?
Most buy to let mortgage lenders will require you to evidence your personal income as a requirement of their buy to let mortgage eligibility criteria.
To evidence this income as part of a buy to let mortgage eligibility criteria you will need to provide the below documents:
- 3 months worth of bank statements
- 3 months worth of payslips
- Your P60 tax return form
If you are self-employed then you may need to provide the below documents to meet the buy to let mortgage eligibility criteria:
- Your SA302 tax return form
- Your P60 tax return
- An accountant’s certificate for a mortgage
- Your company accounts for 3 years (although some buy to let mortgage lenders will accept self-employed borrowers with up to 12 months worth of accounts)
Finally, you will need to be able to prove to the mortgage lender that your property income will meet the rental coverage ratio.
To prove this you will need to obtain a letter from a letting agent which is approved by the Association of Residential Letting Agents (ARLA).
The buy to let mortgage lender will also consider your monthly outgoing expenses to see if you would be able to afford the buy to let mortgage repayments if your tenants default.
If you have any huge debt repayments or most of your income is going towards your expenses then you may find it harder to pass the buy to let mortgage eligibility criteria.
Your mortgage deposit
The buy to let mortgage eligibility criteria for mortgage deposits are pretty standard across the mortgage market.
You will usually need a 25% mortgage deposit to meet the buy to let mortgage eligibility criteria of most buy to let mortgage lenders.
A 25% mortgage deposit will mean you would be looking at a loan to value of 75%.
There are however some buy to let mortgage lenders that will offer you a buy to let mortgage with a mortgage deposit of 15% to 20% based on your experience, your credit score, the property details and the buy to let mortgage eligibility criteria of the lender.
If you have bad credit or are trying to buy a non-standard construction property then you may find that the buy to let mortgage deposit requirement will increase.
The source of your mortgage deposit will also need to meet the buy to let mortgage edibility criteria of the mortgage lender.
You should speak with your buy to let mortgage broker to see if the source of your mortgage deposit will give you issues.
Unfortunately, you won’t be able to use any of the below government schemes to supplement your mortgage deposit:
- Lifetime ISA– gives you a government bonus of £1,000 if you save a maximum £4,000 a year.
- Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan– gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership– You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy– similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy– This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy– allows you to buy your home at a discount price.
- Preserved right to buy– same as above.
- Right to acquire– similar to the above.
Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.
Your credit history
Your credit history also plays a big factor in the buy to let mortgage eligibility criteria.
If you have good credit then you shouldn’t have a problem but if you have bad credit then you may find it much harder to meet the requirements of the buy to let mortgage lender.
In some cases, a borrower with bad credit may be required to put down a bigger mortgage deposit or even put down collateral in order to qualify for a buy to let mortgage.
When looking at bad credit, buy to let mortgage lenders will usually consider how long the bad credit occurred and what type of bad credit it was.
If the bad credit occurred a long time ago then most buy to let mortgage lenders may not take into account but if the bad credit was recent then expect a high mortgage rate and a bigger buy to let mortgage deposit requirement.
Bad credit could include:
- County court judgements A CCJ
- An Individual voluntary agreement (IVA)
- A debt management plan (DMP)
- A default
- A bankruptcy
- A home repossession
- A late payment
If you have bad credit there are indeed some buy to let mortgage elders that may consider you but you may want to speak with a bad credit buy to let mortgage broker who could advise you on your mortgage options.
If you are unsure of what your credit score is then you should check your credit score from the four credit bureaus in the UK: Experian, Crediva, Equifax and Transunion.
Some of these credit bureaus may charge you a fee to view your credit report so what you can alternatively do is request a statutory credit report which is a free credit report which each credit bureau must provide to you upon you requesting it.
Alternatively, you can also use credit score services such as Checkmyfile and clearscore to check your credit report.
Below are some of the things you could do to improve your bad credit:
- Get a credit builder card to show good repayment behaviour
- Get a secured credit card to show good repayment behaviour
- Get a credit builder loan to show good repayment behaviour
- Keep your financial accounts open as long as possible
- Get on the electoral register
- Avoid missed credit repayments
- Avoid late credit repayments
- Keep your credit utilization below 30%
- Report your rental payments to the credit bureau
- Avoid being rejected for credit
- Avoid applying for too much credit in a short space of time
Your experience and circumstances
When assessing a buy to let mortgage application, the mortgage lender will always look at the borrower’s experience before deciding if to provide a mortgage offer or not.
If you are a professional landlord with a big portfolio then you may find that many buy to let mortgage lenders will have a cap on the number of buy to let properties you can have in your portfolio as part of their buy t let mortgage eligibility criteria.
The number of properties most buy to let mortgage lenders will allow youtube have in your portfolio is usually around 4 and you will be classed as a portfolio landlord.
As part of the changing buy to let mortgage eligibility criteria, most lenders will have a cap on how old you can be when the mortgage term ends.
Some mortgage lenders insist that you must be no older than 75 years, whilst others want you to be no older than 85 and there are others with no cap on the maximum age at the end of the buy to let mortgage term.
Buy to let mortgage diners will also have a minimum age that they will consider for most buy to let borrowers. Some lenders will lend to borrowers from 21 and up whilst some lenders will lend from 18 years old.
What you use the Property for
Another important factor when considering the buy to let mortgage eligibility criteria will be what you plan to use the property for. Short term assured single tenants are much more sought after but borrowers looking to borrow for a property used as HMO (House with multiple occupants) may require a specialist buy to let mortgage lender.
This will be the same case for holiday lets and student flats.
Use a mortgage broker for your mortgage in principle
You may want to use an independent mortgage broker to help you get a mortgage on your new home.
Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.
This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.
A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.
After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle.
This will allow you to shop for your home as more estate agents and sellers may take you seriously and it will also give you confidence that your mortgage is indeed a possibility before you make a full mortgage application.
Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.
This will come with a key facts illustration document that details the features of your mortgage including how much you will pay per month.
It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.
If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.
Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.
They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer, and set a completion date with the seller or their conveyancer.
This will then bring an end to the conveyancing process, at which point you will receive the keys to the house and move in.
FAQs: Buy to let mortgage eligibility criteria
Below are some of the most frequently asked questions about the buy to let mortgage eligibility criteria.
Can I get a buy to let mortgage?
Yes, you can geta buy to let mortgage as long as you meet the mortgage lenders affordability requirements.
Some buy to let lenders will prefer that you already own your property but many will consider you even if you do not already own a private residence.
Buy to let mortgage lenders will also look at your age, credit score, the property type and other factors before they provide you with a mortgage offer.
How much can I borrow with a buy to let mortgage?
The amount you can borrow with a buy to let mortgage will depend heavily on your own mortgage affordability. Most buy to let mortgage lenders will only offer a loan to value which starts at 75%.
How is buy to let mortgage affordability assessed?
When assessing a borrower under the buy to let mortgage eligibility criteria, there are several factors which a lender may consider.
Some of the most important factors include:
Your credit score
Your mortgage deposit
The property type
Your rental converge ratio
Can you rent to a family member under a buy to let mortgage?
Yes, you can but mot lenders may not allow this as they believed you will let the property at a discounted rate.
There are specialist buy t let mortgage products which you could use for this such as the family buy to let mortgage(A regulated buy to let).
Can I rent out a house without a buy to let mortgage?
Yes, you may need a buy to let mortgage in order to rent out a property if not you could be breaking the terms of your residential mortgage contract.
What is top-slicing?
Top slicing is when a lender uses a borrowers income in order to cover the shortfall in their rental coverage ratio.
Only a few lenders will do this and they will usually only do it if the borrower has a high income with very few expenses.
In this brief guide, we discussed the buy to let mortgage eligibility criteria which are important if you plan to get a buy to let mortgage.
If you have any questions or comments please let us know.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.