Higher interest rates and fees, lower loan-to-value ratios, and interest-only mortgages are the main differences between getting a mortgage for a buy to let and residential mortgages. On the other hand, Lenders find rental properties riskier because most borrowers rely on rent to cover mortgage instalments. If the borrowers’ tenants have difficulty paying the rent, this can harm the mortgage repayment. Lenders, therefore, have special conditions and criteria for the borrowers.
This article addresses the lenders’ criteria for buy to let mortgages, how they work, their features, and the challenges faced by the borrowers. The role of mortgage brokers in guiding, advising and assisting borrowers in finding the best options for buy to let mortgages to investors is discussed below.
Lenders’ Criteria for Getting a Mortgage for a Buy to Let
Some of the criteria and conditions that lenders consider for borrowers of buy to let mortgages are:
- Lower LTV ratios due to the high risk of buy to let mortgages borrowers from the perspective of many lenders
- Assessment of borrowers’ rental property interest (coverage of at least 125% or even 145% of mortgage payments)
- Income proof criteria. How to calculate the total amount received by limited companies is complex. Borrowers’ income is generally proven in the following ways:
- Payslips: borrowers’ quarterly, one-year or two-year payslips
- Past contracts
- Bank statements: Match the net income shown on the payslips/income from self-employment with the figures in the bank account
- Financial Capability – Lenders consider monthly salaries, costs, potential rental income, and borrowers’ deposits.
- Ownership – The fact that borrowers of buy to let mortgages can prove that they already own their property will positively affect the lenders’ decision.
- Type of business: Lenders do not support businesses that operate in areas other than property. Lenders also impose stricter conditions during the pandemic crisis.
- Minimum income (rent, pension, employment, self-employment, contracting, etc.)
The Function of Brokers in Getting a Mortgage for a Buy to Let
For many homeowners who want to rent out their property, buy to let mortgages are very important. Lenders consider special conditions for these mortgages and have certain criteria for evaluating the borrowers of these mortgages. The complexity and variety of lenders’ rates and conditions and the type of products are enormous, and borrowers must search the market extensively.
Hence, the borrowers of these mortgages will need the help of specialised brokers in the various stages of getting the mortgage. Brokers introduce products to borrowers at appropriate rates and conditions based on their needs and financial conditions. Some of them include:
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The mortgage amount
The amount lenders pay to borrowers for buy to let mortgages depends on several factors. The borrower’s expected income from the rental amount, the borrower’s credit score, and the deposit amount is among the most important criteria for lenders to determine the mortgage amount. Lenders assess borrowers’ risk based on these criteria. To this end, the borrowers must make every effort to prove their affordability. A buy to let mortgage broker is familiar with the lender’s criteria and prepares the borrower’s documents in such a way as to prove the borrower’s actual income to the lender.
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Mortgages limit
Many lenders set a certain limit for buy to let mortgages. A limited number of lenders offer million-pound mortgages. But a buy to let mortgage broker recognises lenders who offer special buy to let mortgages and sets the right conditions for borrowers.
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Mortgage deposit
One of the most important factors in buy to let mortgages is the deposit required for these mortgages. Deposits are a major barrier for borrowers getting a mortgage for a buy to let; lenders usually charge low LTV rates. But some lenders make fewer deposits for these mortgages. However, the number of these lenders is limited, and borrowers have to do extensive market research.
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Mortgage rate
Buy to let mortgages are classified into fixed and variable rates in terms of interest rates. A fixed-rate transaction can reassure borrowers because they know how much their monthly repayments will be, but tracker mortgages (variable rates) can be cheaper overall. Many lenders offer variable-rate mortgages to borrowers, and many offer fixed rates. Using a specialist buy to let mortgage brokers can conduct extensive market research and introduce fixed-rate mortgages to borrowers.
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Type of Mortgage
There are two types of buy to let mortgage: interest only and repayment
- Interest-only mortgages – With interest-only mortgages, borrowers can repay the interest each month, but the capital will remain in place.
- Repayment mortgage – The borrower pays interest and capital every month. This means that the borrowers have full ownership of the property and do not need to repay the capital.
If the housing market changes and the value of the borrowers’ property decreases, the borrowers of interest-only mortgages will face serious losses because the principal amount of the mortgage remains, and they must repay the main capital. On the other hand, the monthly payments of the repayment mortgage borrowers will be higher because they will pay both the interest and a part of the amount they have borrowed. But at the end of the mortgage period, the borrowers’ have to repay the debt in full.
Therefore, choosing the type of mortgage is very important. The borrowers are using the advice of a buy to let mortgage brokers reveal the strengths and weaknesses of these mortgages to borrowers.
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Credit history
Borrowers’ credit rating greatly impacts the mortgage rate and the deal offered to the borrowers. Lenders look at borrowers’ credit history to check the borrower’s credit. If the borrowers have a poor credit history, they may need to improve their rating first. The mortgage broker reviews the borrower’s credit report before making a mortgage request and makes the necessary suggestions.
Advantages of Using SWG Mortgages Specialists
SWG Mortgages specialist advisors are familiar with lenders’ criteria for getting a mortgage for a buy to let. They can help you find the right options according to your needs and financial situation by doing extensive research in the market.
SWG Mortgages advisors have extensive experience assisting borrowers in buy to let mortgages and are well acquainted with the complexities of these mortgages. Therefore, by consulting with SWG Mortgages specialist advisors while saving time and energy, you can choose the best option from the available options.
