13 Mar Hoyl Mortgages – Tougher New Affordability Checks for Buy-to-Let Mortgages
Hoyl Mortgages – Tougher New Affordability Checks for Buy-to-Let Mortgages
The Buy-to-Let market has suffered many setbacks over the last 12 months with the Mortgage Credit Directive (MCD) from the EU, the recent tax changes and now the tougher rental affordability checks. Arranging a mortgage for an investment property has become a minefield for landlords due to the sheer number of lenders with their varying criteria which is continually changing.
How do these new affordability checks affect Buy-to-Let Mortgages?
The amount of money you can borrow for an investment property, such as a Buy-to-Let, is not calculated like a residential mortgage which looks at your income and expenditure to work how much you can borrow. The amount you can borrow for a Buy-to-Let mortgage is purely worked out on rental income, not your own personal income and expenditure. The rental income received from the investment property is used to service the mortgage, as well as the cost of maintaining the property and associated costs. In addition, the standard deposit for an investment property is 25% of the purchase price, which is usually higher than a residential mortgage.
Before the changes in January 2017, the rental income had to cover 125% of the mortgage monthly payment using a nominal interest rate of 5-6% to make sure rental would continue to cover the mortgage payment if interest rates were to rise.
Since January 2017 the majority of the lenders now calculate rental affordability at 145%, at an interest rate of 5.5%.
Let’s start by having a look at a Case Scenario
If you had an investment property with a rental of £500pcm using the old affordability calculator you could borrow, £87,273.
With the introduction of the new affordability calculator the same rent would get you a mortgage of £75,235.
As you can see there is a significant difference of £12,038 due to the affordability changes.
Keeping up to date with Existing Landlords
For existing landlords it’s always worth reviewing your portfolio with an independent mortgage consultant on a regular basis to ensure that you’re getting the best deal. Re-mortgaging your existing investment property can be easier than you think, by talking to a mortgage expert. A quick chat with a mortgage consultant will allow you to get up to date information with what is happening in the current mortgage market and how it could affect your investment property.
For first-time landlords it is advisable that you speak to a mortgage consultant before you look at any investment properties to ensure that you know what is needed for a Buy-to-Let mortgage.
The main focus for lenders that offer Buy-to-Let mortgages is the rental coverage and the suitability of the property from a lenders perspective.
If you are keen to start or continue investing in property then feel free to speak to Hoyl Mortgages. Call Watsons on 01603 619916 and we will arrange for you to have a free initial consultation with one of their Buy-to-Let specialists.