When you’re thinking about getting a mortgage, whether it’s for your dream home or a rental investment, it’s important to know how lenders figure out what you can afford. Here in Bournemouth, our whole-of-market mortgage broker team is here to make things simple for you. Let’s break down the differences between buy-to-let and residential mortgage assessments in a relaxed, easy-to-understand way.
Residential Mortgage Affordability
For residential mortgages, lenders focus on your personal finances. Here’s what they look at:
Income and Job Stability: Lenders want to see that you have a steady income. This includes your salary, bonuses, and any other regular earnings. They also prefer stable employment, ideally long-term or permanent jobs.
Monthly Expenses: Lenders will review your regular expenses, such as bills, living costs, childcare, and any debts you’re paying off.
Credit History: Your credit score and history are crucial. Lenders check for past financial hiccups like missed payments or defaults.
Deposit Size: The more you can put down as a deposit, the better. A larger deposit means you’ll need to borrow less, which makes your mortgage more affordable.
Stress Testing: Lenders want to make sure you can handle future interest rate hikes. They’ll test your ability to pay using a higher rate than what’s currently available.
Buy-to-Let Mortgage Affordability
For buy-to-let (BTL) mortgages, lenders shift their focus to the potential rental income of the property. Here’s what they consider:
Rental Income: The main factor is how much rent the property will generate. Lenders usually want the rental income to cover 125% to 145% of the mortgage payments.
Stress Testing: Just like with residential mortgages, BTL mortgages are stress tested. However, the stress rate is often higher, around 5.5% or more, to ensure that rental income can cover increased payments if interest rates rise.
Personal Income: Even though rental income is key, your personal income matters too, especially if the rental income falls short. Some lenders require a minimum personal income, often around £25,000 a year.
Property Type and Location: The type of property and where it’s located matter a lot. Lenders prefer properties in areas with high rental demand and stable prices. Unique properties might be harder to finance.
Landlord Experience: If you’re an experienced landlord with a good track record, it can be easier to get a BTL mortgage.
Credit History: Your credit score is still important. A good score can help you get better terms, but some lenders may be flexible if the rental income looks strong.
Key Differences
Main Focus: Residential mortgages look at your personal finances, while BTL mortgages focus on the potential rental income.
Income Source: Personal income is crucial for residential mortgages. For BTL, rental income is the star, with personal income playing a supporting role.
Stress Testing Rates: BTL mortgages use higher stress test rates due to rental income variability.
Minimum Income Requirements: BTL mortgages often have minimum personal income requirements, which is less common for residential mortgages.
Property Considerations: The property’s suitability and location are more critical for BTL mortgage assessments.
Wrapping It Up
Understanding these differences can help you prepare better, whether you’re buying a home to live in or an investment property to rent out. Here in Bournemouth, our whole-of-market mortgage broker team is ready to guide you through the process for both residential and buy-to-let mortgages. We’ll help you find the best fit for your needs with access to a wide range of mortgage options.
Ready to get started? Contact us today for friendly, personalized advice and support. Let’s make your mortgage journey smooth and stress-free!
Your home may be repossessed if you do not keep up repayments on your mortgage.
Commercial and Buy to Let Mortgages are not usually regulated by the Financial Services Authority.
We offer a free initial mortgage consultation. There may be a fee for arranging your mortgage and the precise amount will depend on your circumstances. We typically charge a fee of £595.00.