How is Buy to let affordability calculated?

buy to let affordability

Conquering Buy-to-Let Affordability: How a Mortgage Broker Can Help

The buy-to-let market offers an enticing path to property investment and potential long-term wealth creation. But before diving in, securing affordable financing is crucial. This is where a buy-to-let mortgage broker becomes your key ally. Let’s explore how their expertise can empower you to navigate affordability challenges and unlock successful buy-to-let opportunities.

When it comes to borrowing on your buy to let property the way mortgage lenders work out what they can lend to you is calculated quite differently to how they calculate if you were buying the home yourself to live in.
Firstly they will factor in if you have any income and at what level to understand if you can meet your own living costs without being reliant on the rental income.

They will then ask you to confirm what the property currently is or will be rented out for per calendar month and how much deposit/equity there is available.

Once they have determined the mortgage amount requested they will apply a “stress test” rate to this, so even though you may only be paying 2-3% they will be potentially working off a “stress test” rate which could be as high as 5-6%.

Then they will apply another stress figure on top typically related to what tax band you fall into and the type of ownership of the property (If in your own name or a Ltd company) which is typically where they add 25-45% on top of that.

The end result of this calculation is the rental income per month the property will need to generate to achieve the mortgage amount requested. If there is a shortfall this can be sometimes made up by the lender taking some of your earned employment income into consideration or alternatively you will need to borrow a lesser amount and therefore have to put more down as a deposit.

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Paul is a fantastic advisor and guided my husband and myself through the entire process of buying our first home, he made the entire process feel easy and we were well informed along with great communication and fast action. We completed within 3 months of contacting Paul.
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Working with Paul has been a hugely positive experience. Paul took the time to understand our needs and financial situation, ultimately securing us a mortgage deal that we would not have been able to obtain on our own. His guidance and patience over an extended time was invaluable in guiding us through a volatile period in the property market. I highly recommend working with Paul at Your Property Financial.
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It has been great working with Paul. He helped us to redeem our help to buy equity loan which didn't seem possible to me when I first contacted him. It took much longer than expected due to many obstacles but Paul explained every step of the process very clearly and he regularly communicated with me to ensure the remortgage went through as efficiently as possible. I would definitely recommend working with Your Property Financial.
I would highly recommend Paul as a mortgage broker. As a first time lone buyer I began the process feeling very out of my depth, particularly in a market where mortgage rates are very high. But from the get go Paul provided reassurance and practical guidance and has been immensely helpful throughout the process. I've really appreciated his responsiveness, honesty and support.
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Louise Griffiths
I reached out to Paul 2 years ago and giving this review now because I wanted to ensure that I could give a true review of what benefits I have experienced from using his service. I am thrilled with the financial expertise given to me by Paul. His skillful negotiation secured me an excellent mortgage rate within a short turn around time. This has not only set me on the path to paying off my principal balance but has also allowed me to simultaneously build a solid emergency fund. His initial guidance has been invaluable in shaping my financial future. I look forward to working with Paul again, once my 5 year plan is near its end. Highly recommended!
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Paul has been consistently excellent, ensuring we got the best possible mortgage deal at a time when rates weren't great. Paul worked with us to understand our financial complexities and went above and beyond to ensure they were understood by mortgage providers. We've been made to understand every stage of the process, and as first time buyers we were able to feel confident in the decisions we made. I would highly recommend working with Paul at Your Property Financial.
My almost a year-long journey with Paul as my broker has been truly amazing, despite a few hiccups during the mortgage process. Working with him has been the best decision ever! As a first-time buyer, I lacked knowledge about purchasing a home, but Paul's guidance and expertise were outstanding. He explained things in a clear and concise way. What impressed me the most was Paul's responsiveness. He promptly addressed all my questions and concerns, never making me feel like a bother. Even when I faced challenges, Paul's determination and problem-solving skills were unwavering. I felt so supported throughout the entire process. Thanks to Paul's unwavering support, I managed to reach this point. I highly recommend him to anyone, especially fellow first-time buyers. Paul's knowledge, patience, and reliability are unmatched. He's not just a broker; he's an invaluable ally in this complex process. Thank you, Paul!
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Paul helped me to get my Mortgage approved in less then 48 hours! He has been great and I can’t recommend him highly enough. His communication is excellent, and he helped me understand each stage of the process easily. Thank you so much for helping me buy my very first home! I will most certainly be recommending Paul to friends & family!

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Let’s look at an example.

btl mortgage advisor
your property financial - mortgage broker advice

Property of £200,000
Deposit of 25% £50,000
Mortgage of £150,000
Stress rate of 5.50% with a basic rate taxpayer banding of 25%
£150,000 Mortgage X 5.5% Stress tested X 125% rate banding= £10,313
So on the above example, the property would need to attract at least £860 pcm in rental income.

Minimum deposit required is typically 25% but some lenders can accept 20%
This can be a very complex calculation and there are numerous factors to consider and each lender has their own stress test calculations, different criteria, varies rate bandings and also depending on whether you take a 2 or 5 year fixed rate the calculations are assessed differently.
So speak with your mortgage broker who will be able to research the options available to you and confirm your borrowing levels.

Read on to find out what’s the implications of different buy to let ownership structures are in Personal vs Ltd company ownership”

Simplifying the Application Process

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Applying for a buy-to-let mortgage can involve complex paperwork and negotiations with lenders. A broker streamlines this process by:

Sourcing the best deals: They have access to a wider range of lenders than you might find on your own, increasing your chances of securing a competitive rate.

Handling the paperwork: They can guide you through the application process, ensuring all the necessary documentation is gathered and presented correctly.

Negotiating with lenders: Their experience allows them to advocate for you and negotiate the best terms possible on your behalf.

Beyond Affordability: Added Value from a Broke

The benefits of using a broker extend beyond affordability. They can offer valuable insights on:

Market trends: Their knowledge of the local property market can help you identify areas with good rental yields and potential capital appreciation.

Tax implications: They can connect you with tax advisors who can explain the tax considerations of buy-to-let investments.

Ongoing property management: Some brokers can refer you to reputable property management companies if you don’t plan to handle tenant issues yourself.

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