The turn of the century saw an explosion of the buy to let (BTL) market, as investors sought to buy extra properties to rent them out, and create either a living or a nest egg for the future. Many people were able to benefit from the opportunity to invest, but there was also problems. The minimum income requirements for people wishing to become BTL mortgage holders was often around £25,000 per year. This was often a problem because the BTL mortgage holder’s minimum earning requirement of £25,000, was not an accurate reflection of the applicant’s ability to pay the mortgage: most BTL mortgages are paid through the rental revenue generated from the property.
Added to this strict stipulation around income the economic downturn, from 2008, had a profound effect on the property market as credit became harder to get and first time buyers especially struggled to get their feet on the property ladder. This opened up an opportunity for BTL investors to maximise their revenue as rental demand soared and by 2012 Belvoir, one of the largest rental agents, noted that demand for BTL properties had not declined. In fact, said Belvoir, there had been an increase in applications for BTL mortgages. In turn, as demand for BTL mortgages grew, supply fell: there was a decline of BTL lenders from 100 to 20 in 18 months. This development was set in the context of job losses, rising prices and credit becoming difficult to get: therefore getting a BTL mortgage was not as easy for everybody as it had been before the recession. One of the most profound effects of the economic problems was that the minimum annual income required to obtain a BTL mortgage was raised from £10,000 to £25,000.
However most recently some lenders have done a complete turnaround on this minimum income requirement, some removing it completely. One of the first companies to do this was Birmingham Midshires, who have removed their minimum income requirement altogether from the 10th June 2013 BM Solutions, one of the major lenders from the Lloyd’s Banking Group, scrapped its minimum lending requirements for BTL mortgage applicants. (see their new criteria here). The main reason for this decision, they say, is because the ability to pay the mortgage is purely based on the rental income generated, and not the landlord’s personal salary, which of course might be tied up with paying their own mortgage, and other commitments and investments.
This has effectively opened up a whole new area of opportunity for both new would-be landlords interested in joining the lettings industry, and also existing landlords who have up to now had their hands effectively tied due to their low cash flow. Low cash flow is a fairly typically symptom among buy to let landlords at the moment, as many property investors have taken advantage of the relatively low interest rates and subdued property market to expand their property portfolio, and with many industry expects now predicting property price rises on the horizon – it is clear to see why.
Other lenders look set to follow suit, and instead stipulate that the monthly rental income must cover 125% of the monthly mortgage payment, or that the amount borrowed must not exceed four times the applicant’s salary. This relaxing of rules is a great opportunity, and it means that the prospect of becoming a BTL landlord is more obtainable for more people. Of course, like any financial decision, there is still an element of risk and for this reason it is prudent to consult with an experienced broker, such as Ascot Mortgages Ltd, who deal with a large number of buy to let mortgage clients.