Please Note: This Article is 5 years old. This increases the likelihood that some or all of it's content is now outdated.

Mortgage Applications:

If you are among the one in 10 landlords who have had difficulty securing mortgage finance in the last 12 months, this article could help you explore other options.

In response to pressure from policymakers and the recently announced changes to landlord tax that are just around the corner, many high street buy to let lenders have been tightening their criteria.

Fortunately, thanks to the proliferation of specialist and commercial finance providers in the marketplace, there could still be options available to you – even if you’ve been turned down by a mainstream lender.

- Advertisement -

Why your buy to let application could have been declined

Age

Buy to let applicants are older, on average, than residential applicants, which can make it difficult to get a mortgage – particularly if you are in, or nearing, your retirement.

69–75 are common upper age limits set by lenders, and most require evidence of retirement income if the loan will extend beyond your retirement date.

What other options are there?

Some lenders will extend loans to applicants aged between 75 and 80. It is also possible to find a very small number of lenders with no upper age limit – in these instances, the case will be underwritten individually and subject to other criteria.

Buying an ex-council or ex-local authority property

Some lenders will impose onerous conditions on ex-council or ex-local authority purchases, such as higher minimum values or minimum deposits, or specific construction requirements (particularly in the case of flats). Others might outright refuse to fund the purchase.

What other options are there?

A number of lenders will agree to fund ex-council and ex-local authority purchases, particularly if the property has been privately owned for five years or more. Speak to a mortgage advisor for help finding a suitable lender.

Credit problems

It is very difficult to get a mortgage if you have had credit issues in the past. Arrears, bankruptcy declarations, County Court Judgements (CCJs), defaults, Individual Voluntary Arrangements (IVAs) and repossessions all go on your credit profile and count against you when you are applying for finance.

What other options are there?

‘Almost prime’ and ‘near prime’ mortgages exist for customers who have had credit difficulties in the past, and certain issues in isolation may not make it impossible to get a mortgage. These include:

  • Settled secured arrears older than two years
  • Unsecured arrears older than one year
  • Discharged bankruptcy older than ten years
  • CCJs older than two years
  • Settled credit defaults older than one year
  • Mobile phone defaults, irrespective of age
  • Resolved IVAs older than ten years

Insufficient deposit

The maximum possible loan-to-value (LTV) ratio for a buy to let mortgage is 85%, meaning you need to stump up 15% of the property’s value. However, scarce few lenders will lend this high – most only go as high as 75% or 80%.

Between LTV limits and minimum borrowing, the very least you will need to put down for a property purchase is in the region of £10,000 – and this is not including fees and other start-up costs.

What other options are there?

If you don’t have enough cash to secure your chosen property, you might be able to extend your borrowing. Some commercial and specialist lenders will accept additional security in lieu of the full cash amount, and by securing the loan against additional assets, you may be able to borrow up to 100% of the value.

Bear in mind that this will increase the amount you need to repay, and will put your property or properties at risk of repossession.

Insufficient income

Though most buy to let mortgages aren’t subject to affordability checks in the same way that residential mortgages are, many lenders still require a minimum income before they will agree to lend. This is typically between £25,000 and £50,000 – sometimes higher for complex cases.

What other options are there?

Depending on your other circumstances, some lenders may still agree to lend to you even if you don’t meet other lenders’ income requirements.

Some will accept joint applicants that meet the income threshold between them, as long as one or more applicant owns a property. Others will be more willing to lend to experienced landlords (those who already own at least one property), or landlords who can evidence that they have sufficient savings to cover voids and running costs.

Additionally, subject to other criteria – including credit rating and rental cover – some lenders may agree to lend to applicants who can evidence any taxable income at all, even just a small amount.

Insufficient rent

Most lenders test rental cover by applying a ‘debt service coverage ratio’ (DSCR) to a stressed interest rate. (125% at between 5% and 6% per year is very common.)

Landlords buying in expensive areas, or investing in properties that require renovation, might have trouble meeting this requirement. Furthermore, limited company and HMO landlords often encounter higher DSCR requirements than ordinary purchasers.

What other options are there?

Some specialist lenders recognise that not one size fits all, and are able to offer some products with lower coverage ratios or stressed rates than others. Speak to a mortgage advisor to see if you might be able to find a suitable loan.

Not a homeowner

There are plenty of products out there for first time landlords, but most buy to let lenders look to the mortgage on your own home for evidence of financial stability. This can make things tricky for applicants who, for whatever reason, don’t yet own their own home.

What other options are there?

It might still be possible to get a mortgage if you are already an experienced landlord, or if you are applying jointly with someone who is. You might also be able to find a mortgage if you have formerly owned property (either your own, or a buy to let).

Finally, some lenders will consider single applicants who have never owned property, subject to other criteria – including minimum income (£25,000) and a good credit history.

A mortgage advisor may be able to help

If you have had difficulty securing buy to let finance in the past, a mortgage advisor may be able to help you. With a market of over 800 products and counting, someone with experience and knowledge of different lenders’ criteria could be your answer to finding a suitable loan.

Written by Ben Gosling at commercialtrust.co.uk

Please Note: This Article is 5 years old. This increases the likelihood that some or all of it's content is now outdated.
Subscribe to LandlordZONE

LEAVE A REPLY

Please enter your comment!
Please enter your name here