Buy-to-Let Mortgage Calculator

How do lenders calculate affordability for a Buy-to-Let mortgage?

Assessing affordability is crucial for lenders for two primary reasons. Firstly, it provides them with an essential indication of how much you can afford to borrow, considering that you’ll need to repay them over time. Additionally, it serves as a measure of how profitable your Buy-to-Let property is expected to be, as the rental income is often utilised to cover mortgage payments to the lender.

While residential mortgages typically assess income and outgoings during the affordability assessment, Buy-to-Let mortgage affordability criteria differ slightly. Lenders still consider your income and outgoings, but they also factor in projected rental income. Since interest payments are part of the equation, the rental income should exceed the mortgage interest by a specified margin.

Usually, lenders require the rental income to be anywhere from 125% to 145% of the mortgage interest payment, assuming an interest rate between 5% and 5.5%. It’s advisable to be prepared for higher rates, especially when applying for an HMO Buy-to-Let.

During their assessments, lenders always conduct a stress test to ensure that you can make payments even if interest rates rise. However, if you opt for a fixed-rate mortgage for five years or more, calculations are based on the following:

• A hike of at least 2% above current rates.
• Market projections of future interest rates.
• A minimum stress-test rate of 5% – 5.5%.

What do lenders consider when applying for a Buy-to-Let mortgage?

If you have a property in mind, then you are likely to have an idea of how much rent you will charge. However, lenders won’t take your word for it. Therefore, they will use a surveyor to calculate this based on things such as the property value, market rates and location.

Lenders will also consider any void periods that may arise during ownership to keep things as realistic as possible. Typically, they assume there will be no tenants in the property one month out of the year.

During their affordability calculations, lenders may also factor in property-related expenditure, deducting it from the rental income. This can be costs such as letting agent fees, insurance, safety check costs and any maintenance fees.

Finally, an important consideration is the lenders imposed Loan-to-value (LTC) limit. This is set and will put a cap on how much they will lend. A maximum of 75% is very common for most lenders, although some do offer more.

Always remember that lenders will place their products in LTV tiers. Meaning, if you can provide a larger deposit, you are more likely to receive better interest rates.