Buy to let mortgages don’t work the same as a residential home loan. While a lender will want to verify your annual earnings, it isn’t the primary metric they’ll use to work out what they can lend.
In a buy-to-let mortgage, the lender still needs to ask about your income and employment, which could seem strange since the rental income is the revenue that will pay the interest!
However, it’s important to understand how your income impacts your eligibility because it’s all about mitigating the lender’s risk and how you’d keep up with the mortgage payments between tenancies.
How Much Do I Need to Earn to Get a Buy-to-Let Mortgage?
Some mortgage advisors have a policy whereby they’ll only offer a buy-to-let mortgage if you have a personal income of at least £25,000 a year (outside of the property rent).
Rental income remains the most important factor, and other lenders don’t have any thresholds.
Most lenders will want to see evidence that the rent generated will be at least 125% of the monthly mortgage payments, although that could be 145% or higher.
What Documents Will a Buy-to-Let Mortgage Lender Need to See?
Although you usually need a little less documentation for a BTL mortgage, it’s well worth getting everything prepared in advance of your application:
- Income proof, usually three months of payslips
- Mortgage statements for existing properties
- Evidence of the forecast rental income
- Proof of your deposit
- Documents showing your regular bonuses or commissions
- Photo ID and proof of address
- Your current or more recent P60
- SA302 tax calculation forms if you are self-employed
Can I Apply for a Buy-to-Let Mortgage If I Don’t Have a Job?
Yes, you don’t necessarily need a separate income, provided you work with a broker to ensure you apply to lenders without this requirement.
If you’re a new landlord and don’t have supplementary income, the application becomes a higher risk, so you may have fewer lenders to choose from.
Lenders prefer buy-to-let mortgage applicants to own a residential home and have at least a year’s track record of keeping up with the mortgage payments.
Unemployed applicants may also have assets such as savings that would cover the mortgage if the rental property were empty, solving the problem.
Proving Your Income on a Buy-to-Let Mortgage as a Portfolio Landlord
A complication arises when you work as a professional landlord or own investment properties through a company, where all of your additional income is generated from rent.
In this scenario, you’ll usually need to provide either accounts for your properties showing the annual earnings or copies of your self-assessment returns.
If you have four or more buy-to-let assets, the lender may have a different requirement since some mortgage providers have a cap on how many properties they will mortgage for the same applicant.
How Can I Evidence My Income For a Buy-to-Let Mortgage if I Am Self-Employed?
A growing proportion of the workforce is self-employed or in freelance or contractor roles. Lenders have become more flexible with self-employed buy-to-let mortgages to recognise the demand.
Usually, you’ll need to offer accounts for between one and three years, evidence of your earnings over that time, bank statements and the normal ID documents.
Deposit requirements tend to get higher where the application is riskier, so if you don’t have at least two or three years of trading history, you might find that you need a deposit of at least 25%.
Solid applications without any risk factors are subject to the same deposit requirements, but some lenders will accept an application with as little as a 15% deposit.
Calculating Rental Earnings Before Applying for a Buy-to-Let Mortgage
As we’ve explained, the rent earned from the property you are mortgaging is the most important factor for the lender to consider.
There are regulations in place that mean lenders need to be confident that the rent generated will be sufficient to cover the mortgage interest, so they’ll always want as much verification about projected earnings before they offer to lend.
You can use several approaches to demonstrate what you’ll earn, but normally that means:
- Checking rental prices for similarly sized properties in the area.
- Having a rental valuation from a local lettings or estate agent.
- Using existing leases if you’re buying a property with tenants in situ.
- Providing copies of previous leases from the old landlord.
Market rent values are the core figure, which use the valuer estimates to determine what an independent surveyor would expect the property to generate.
If you’d like advice about calculating your rental income, proving your income for a buy-to-let mortgage or finding lenders without any minimum income requirements, please get in touch with Revolution Brokers.
Our buy-to-let experts are available on 0330 304 3040 or via email at firstname.lastname@example.org and will steer you through the best options available.