Last Updated on 2nd October 2020
With interest rates still fairly low, property investment is as popular as ever. As lenders try to manage the increased demand of buy to let applicants, buy to let mortgage criteria is ever-changing.
Buy to let mortgages are currently a lot easier to obtain than former years. Previously, buy to let applications were primarily based on an applicant’s income and credit file. This meant that buy to let mortgages were only available to applicants with clean credit and a substantial income.
More recently, lenders have shifted their focus towards projected rental incomes that investment properties may achieve. The change in focus means it’s easier to obtain a buy to let mortgage now than it previously was.
Buy to let criteria are explained below in small digestible chunks. You can make an enquiry with an expert mortgage advisor for a more tailored answer to your individual circumstances.
Buy to let mortgage criteria
Finding the right mortgage can be confusing as every lender has different mortgage criteria for which they assess applications on. For instance, some lenders may accept company applications, where landlords have their portfolio in a limited company, other lenders won’t. Lenders may accept bad credit, whereas other lenders will simply decline.
In some cases, you may only be approved a buy to let mortgage via a specialist mortgage advisor. Criteria around buy to let has many variables. A structured approach is always advised to finding the best buy to let deal for available.
Age of applicant
The minimum age for being able to purchase a buy to let is 18. Although possible at 18, some lenders will require applicants to be at least 21 or even 25 in some cases.
The maximum age for being able to purchase a buy to let is generally 85. Some lenders will only go up to 75 years of age. There are lenders that have no maximum age limits in some circumstances.
Experience of applicant
The property experience you have will usually fall into one of the below categories. Each category can have an impact on your buy to let mortgage assessment.
- First-time buyer
- First-time landlord (own a residential property)
- Landlord (currently owns at least one buy to let property)
- Experienced landlord (owns a portfolio)
Your current status can impact what products are on offer to you. Experienced landlords often find it easier to obtain buy to let mortgages as opposed to first time buyers. Some lenders may require you to already be a homeowner, whereas other’s won’t. Being an experienced landlord can also have its setbacks. This is because some lenders have a limit on how many buy to let mortgages they can offer an individual.
Location of applicant
The majority of lenders will require buy to let applicants to be UK residents. Expats can find it difficult to be approved a buy to let mortgage. Lenders often see expats as high risk due to the fact that the applicant is living in a different country. Occasionally some lenders may still lend to overseas applicants in cases where the applicant is low risk to begin with.
The status of your credit score
Getting a buy to let mortgage with bad credit can be difficult. The good news is that it’s still possible. In most cases, you’ll more than likely need a specialist lender to secure a buy to let mortgage. As each adverse credit file varies, it does mainly depend on the severity of the credit issues and how recent they were as this is what lenders will look at.
It’s often easier to obtain a residential mortgage than a buy to let mortgage if you have adverse credit. The same lender may offer you a residential mortgage but not a buy to let mortgage. In this case, you would avoid certain lenders as they wouldn’t be suitable for wanting to invest in property. You would then simply switch to a lender who suits your situation.
Buy to let property criteria
The property you wish to purchase also makes up part of a lender’s buy to let mortgage criteria.
The type of property you’re purchasing
Generally speaking, lenders tend to lend on traditional brick-built houses such as detached, semi-detached and terraced properties. Lenders will instruct a surveyor to carry out a mortgage survey to ensure that the property meets their requirements before lending.
On occasions, a mortgage survey may suggest a number of improvements as a condition of the mortgage, which is then usually agreed between the vendor and the buyer. Subject to such conditions a lender may still lend on that particular property. Even if you remortgage a buy to let property, lenders will still carry out a mortgage survey to assess whether the property meets their specific requirements.
Why lenders decline particular property types
The only times where lenders may decline certain properties are when properties are in a very dilapidated state. For instance, if the property doesn’t have an active working kitchen, it’s extremely difficult to find a lender to give the green light. There are other methods for obtaining finance, but a buy to let mortgage would be rare.
In other cases, if you were looking to purchase a leasehold flat in an apartment block, but the apartment block didn’t have an active managing agent, then you would really struggle to get a mortgage. This is because lenders would rather allocate their finance to properties with lower risk. Lending on a leasehold apartment without a managing agent maintaining the block is a very high risk.
The material that has been used to build the property can also have a huge impact on whether or not a mortgage is possible. For instance, properties which aren’t conventional brick-built can sometimes be difficult to mortgage. These include barn conversions, concrete properties, etc. There are specialist lenders that may still consider lending on a buy to let basis. It’s best to check with an expert advisor before starting your purchase process. Having a structured and planned approach can potentially save you a lot of time and money.
This is just a number of examples, so be sure to try and distinguish whether or not the property is mortgageable. If you’ve seen a property and are unsure, our expert advisors can distinguish if it meets the requirements for buy to let mortgage criteria.
Although there are generally no maximum amounts per lender, the maximum mortgage loan will depend more on affordability. Some lenders do have minimum purchase values, with the lowest at around £40k. There are lenders that have no minimum purchase value also.
The majority of lenders will lend in all UK locations, however there are lenders that are restricted to either England, Ireland, Wales or Scotland. It’s worth bearing in mind if you’re particularly keen on a mortgage product to make sure that the lender isn’t restricted in your area of purchase.
How much deposit will you need for a buy to let property?
You will more than likely need at least a 25% deposit in order to purchase a buy to let property. Some lenders may consider buy to let mortgages with a 20% deposit, but such products are normally for experienced landlords. If you have credit or affordability issues then lenders may require higher deposits to lower their risk in lending to you.
How your affordability is assessed
Affordability is usually assessed by calculating your income against your outgoings. On buy to let mortgages affordability is assessed differently. Lenders are more concerned about whether or not the rental income will be enough to cover the monthly repayments, along with unexpected circumstances such as void periods or maintenance costs. Lenders will usually require the projected rental income of the property to cover the mortgage payments by around 120-130%. Bear in mind, not all lenders are the same and will have different criteria for assessing how much they can lend on a buy to let mortgage.
Buy to let income model
Residential lettings, such as your standard single lets with tenancy agreements are usually available for buy to let mortgages with all lenders. If you’re aiming for an HMO (multi letting rooms/flats) or short-term licence agreements, then you may require a specialist lender. Rates can vary and are usually higher for anything that isn’t a standard single let. If you’re still unsure, you can speak to an expert mortgage advisor today.
The status of your tenants can also have an impact on your buy to let mortgage application. Some lenders may have no issue if your property was to be let to working professionals but may refuse if tenants are students or relying on the council to pay their rent (DSS tenants).
Not all lenders follow the same buy to let mortgage criteria so it really does vary. Our expert advisors specialise in buy to let mortgages and are always available to answer any questions that you may have.
Purchasing a buy to let through a limited company
With recent changes in tax laws, property investors with portfolios may benefit from paying less tax by placing their portfolio under a limited company. By obtaining a buy to let mortgage through a limited company, investors are able to offset expenses as a limited company normally would. Other directors may just have a limited company which is a completely separate business to property investment, however may want to purchase through the limited company.
If you’re a director and require a buy to let mortgage via your limited company, it is possible. Lenders have been approving more buy to let mortgages via limited companies, simply because so many landlords have created limited companies due to changes in tax. Prior to this, there were only a handful of lenders that would have considered lending to a limited company as the risk for a lender is quite high. Self-employed buy to let mortgages are very common and lenders have adjusted their criteria accordingly.
If you require a buy to let mortgage via a limited company, you can ask our buy to let specialists a question at any time.