When assessing a buy-to-let mortgage application, many lenders are now looking at both the rental income from the property, as well as other income that the landlord earns.In January 2017, the Bank of England introduced stricter affordability rules for buy-to-let lenders. These mainly affected portfolio landlords with four or more properties. Most lenders wanted the rental income from the property to be at least 145% of the mortgage payments, even if the interest rate went up to 5.5%. The rules were introduced to make sure that, after extra tax payments and other costs, landlords would still be able to afford to pay back their mortgage. Previously the required rental income was 125%.
The rules mean that some landlords found it difficult to obtain a new buy-to-let mortgage. To make it easier for landlords, lenders started to accept a landlord’s other income as proof of affordability. They took earned income into account, but typically they wanted this to be £50,000 or more. Lenders also look at the rental income from other properties that the landlords owns.
A lender’s main criteria is to establish that a borrower will not let their mortgage repayments go into arrears. The tax relief on commercial mortgage interest payments for buy-to-let landlords have been cut. Rented houses can have vacant periods, and the Bank of England may raise interest rates. A landlord should be able to withstand these extra costs and keep up mortgage repayments.