Most buy-to-let or BTL mortgage lenders base their lending decisions on the amount of rent the property will generate. Many lenders want rents to cover 125% to 145% of the mortgage payments before they accept a loan application. They do not take any other income from landlords into consideration. This is normally called a stress rate and can be applied differently based on the lender or the customer.
If a landlord wants a commercial mortgage over a short period and has other income to pay the higher monthly repayments, then rent alone will not cover 125% of the repayments. Some landlords have formed limited companies to purchase property as companies do not face the same restrictions as individual landlords. Plus, there are some tax benefits to mortgages under a limited company.
Landlords that can show that the rents, plus other income sources, can easily cover mortgage repayments can now obtain commercial mortgages. A commercial mortgage broker will be able to perform the initial assessment on whether the borrower can afford the loan, and then find a specialist lender that is prepared to take into account both rental and other income received by the landlord.
The buy-to-let market has seen a boom in recent years. However it is important to understand the terms and risks of the mortgage.
