Buy to let mortgages have always made up a significant portion of the mortgage market and as rental growth continues to increase, as we reported last week, more and more people are looking into their options with either creating a property portfolio or possibly just renting out their cherished former home that they can’t bear to part with. Although buy to let mortgages or remortgages are not calculated and assessed at the same levels as residential purchases, lenders generally have three requirements:
1) The expected rental income is enough to cover the mortgage payments.
2) Your deposit is large enough (Most mortgage lenders do not allow you to put down less than 15%-20% deposit on a buy to let purchase)
3) The applicants have a minimum earned income so that if there was an issue with rent coming in, the landlord would still be able to keep up with the mortgage payments.
With professional advice and guidance from a financial advisor, things like the rental income affordability and the deposit you have available will be considered and tested to make sure that your property is self-financing, and it will make you a profit. One sticking point however is often the minimum income requirement.
Although your income does not often need to be ridiculously high with most lenders, a lot of people consider renting out properties to supplement their main income which may be minimal in the first place. Lenders such as NatWest, MetroBank and Coventry all technically don’t have a minimum income requirement but most of the time, these lenders do still ask for evidence of some income so they can be satisfied that client can cover any rental voids.
There is now an increasing number of lenders entering into this space by not having a minimum earned income requirement for buy to let mortgages however, currently there is one lender who will genuinely not ask for any minimum income and will not ask for any proof of income at all, this lender is The Mortgage Works (The buy to let arm of Nationwide).
On Monday, specialist lending powerhouse Accord Mortgages announced that they would be following in the footsteps of the previously mentioned lenders by removing all their minimum earned income requirements from their buy to let mortgages and that they would also consider first time buyer landlords, taking effect from Wednesday the 24th of November.
“Common sense approach”
Famous for their common-sense approach to applications, Accord have said that with all other mortgage applications they consider each case on its own merits, so it made no sense that they would still ask all landlords to have a minimum earned income. This DOES NOT mean that every application without an income declared will be accepted.
The rent affordability rules, and minimum deposit rules will still be considered, but Accord will just take a more common-sense approach to the application and perhaps an even more in-depth assessment of each individual case based on its merits and the way it is positioned by the broker. We expect that they may still ask for things like tax calculations and proof of rental income in order to satisfy themselves that the tax is being paid on the rent from the properties however Accord haven’t yet confirmed the supporting documents that they will require for these cases.
In a press release on Monday Accord said: “To help more landlords, including those who would normally meet our lending criteria and risk profile but wouldn’t meet our minimum income requirements, we’ll no longer be asking for a minimum income of £25k. Minimum income requirement of £50k still applies to top slicing applications. Affordability will still be based on the existing rental thresholds. In addition, if you have a landlord client who’s also a first-time buyer, rather than just ‘computer says no’ our underwriters will have the flexibility to review each case on its merits and give you a lending decision based on good old common sense.”
This incredible step forward will open a lot more opportunities for people in the buy to let market including first time buyers who are looking to set up a sustainable income source for their future. If you or anyone you know is wanting to investigate a buy to let purchase or remortgage and needs some advice, please give our office a call on 02088771169.