• Jonathan

Can I get a BTL mortgage - I've not got much income




The first thing to understand with Buy to Let (BTL) mortgages is that the lending is not necessarily based on your income but rather the rental income that you are receiving or the rental income that the lender's surveyor is prepared to agree to. Without a decent rental yield then you are scuppered.


There are probably three challenges that you have to face when trying to get a BTL mortgage



Challenge 1


The value of the property will ultimately dictate how much you can borrow. The standard BTL lenders will ask you to stump up a 25 % deposit. There are some lenders out there that will lend on a 20% deposit basis. At the time of writing in January 2021, Virgin are happy to do this but it is expensive (1.7% points higher than the current best 2 year deal on the market).


Challenge 2


You need to look at the rent now. There is something called a Stress Test and this governs how much you are going to be able to borrow basing this on the amount of rent you receive or are going to receive. More about the Stress Test later


Challenge 3


Finally, the lender will ask how much income you are earning. The camp here is divided into those lenders that require you to be earning a decent wedge and those that don't really care. If you are earning in excess of £25,000, it is fair to say that you will get access to pretty much all of the lending market and all of the best deals out there. But if you're reading this, I guess you want to know who is going to lending with less than that.



No minimum income levels


Aldermore - if you are an experienced landlord otherwise your need to earn £25,000

Bank of Ireland

Birmingham Midshire - but one applicant has to have an income - £30,00 if portfolio landlord

Coventry Building Society

Kensington - only if you own a property already or are a Portfolio landlord

Leeds Building Society - need an income and has to be affordable - £40,000 for holiday let

Metro Bank - subject to rental void checks

Post Office Money

Precise Mortgages - £40,000 if a holiday let

The Mortgage Lender

The Mortgage Works



Stress Tests


I mentioned earlier in the article the Stress Test and it is important that if you are stepping into the world of BTL then you need to get your head around this. The Stress Test is the calculation that a lender will use to decide how much they are going to lend to you. It is referred to as the minimum rental income required expressed as a percentage of your monthly interest based on a hypothetical interest rate. Really it is just the lender working out a safety net for them if you have a rental void. They look at two factors.


  • They want you to be receiving enough rent to cover the mortgage - duh!


  • They take into account fluctuations in the interest rate and what effect that will have on your ability to repay the mortgage on a monthly basis.


Here is an example


Currently, for basic rate taxpayers ( other rules apply to higher rate taxpayers) Coventry Building Society says that the minimum income required is 125% of your monthly interest payment on a reference rate (hypothetical) rate of 5.5%. For those in the industry, this is described as a Stress Test of 125 @ 5.5


So you want to borrow £75,000 on a purchase of £100,000. How much rent do you need


Here is the math


STEP 1 -

Multiply the amount you want to borrow by the hypothetical rate ie 5.5%.

£75,000 x 5.5% = £4,125 - annual interest

STEP 2 -

Multiply the annual interest amount by the minimum income figure of 125%

£4,125 x 125% = £5,156.25 - required annual rental amount

STEP 3 -

Divide the annual rental amount by 12 to get the required monthly rental

£5,156.25 / 12 = £429.69 - the required rental needed to borrow £75,000


Thankfully the lenders do all of this for you so go to the lender's web site and look for the stress test calculator for BTL. Pop in the numbers and they will do the hard work for you. Alot of lenders will work out how much rent you need to be able to borrow a certain amount as well as working out how much you can borrow on a specific amount of rent. The Mortgage Works has a great calculator for this.


Finally, I have worked out a simple calculation that you can do yourself without trawling through the lender's websites which will give you a rough idea of how much you can borrow on a particular rental income. All this requires you to know is the Stress Test figures for that lender. All you do is multiply the figure by the rental amount and that will tell you how much you can borrow


GENERALLY BASIC RATE TAX PAYERS

125 @ 4.50 = 213

125 @ 5.25 = 183

125 @ 5.50 = 174 - most popular amongst lenders

130 @ 4.00 = 230

135 @ 5.50 = 162


GENERALLY HIGHER RATE TAX PAYERS

140 @ 5.00 = 171

140 @ 5.50 = 155

145 @ 4.50 = 184

145 @ 5.50 = 150 - most popular amongst lenders

145 @ 5.00 = 165



If you need any help with anything related to BTL then get in touch. It is our niche. I am a solicitor with 25 years of experience, a whole of market mortgage broker, and a BTL investor. I have the skill, knowledge and background to help you.