How do lenders assess borrowers?
In order to qualify, borrowers will normally have to meet strict eligibility criteria, due to the risk associated with buy-to-let. Lenders analyse the risk involved with giving you money, and decide if it’s worth doing.
This isn’t just to protect their own money; it can also save you from getting into financial difficulty, if they decide you are not in a secure enough financial position to have a buy-to-let mortgage.
Personal and rental income
Income plays a big role in the decision of whether you are suitable for a mortgage. Usually, you must earn at least £25,000 a year, or you won’t be able to get a loan. In addition to this, you must also prove that your rental income will be at least 125 per cent of the mortgage repayment, in most cases.
The majority of banks and building societies also require borrowers to be a minimum age (usually 25), while there is often an upper age limit too, due to the length of time mortgages typically take to pay off.
You need to prove that you have enough cash for the deposit in your savings, and like with many loans, your credit history will be considered by lenders. If you have a poor credit record then you may be unable to take out a loan.
Furthermore, there is generally a cap on how much money can be borrowed, and the maximum number of buy-to-let loans you can normally take out is three.
It’s not uncommon for first-time lenders to be denied a mortgage by a lender. If you haven’t rented before, you could face more restrictions on the choices you can make.