BTL mortgage amount

I've been reading about BTL mortgages and how the amount that might be lent is dependant on the property's rental value - but how does that literally work? Does the mortgage company set the minimum amount? Am slightly confused, sorry.

Comments

  • Yes I think you've confused yourself somewhere.

    Some lenders will expect the rent to be 125% of the mortgage payment, is this the sort of thing you mean?
    Slummy mummy!
  • Yes, I think I am confused somewhat. I'm just starting to think about buying a btl and I'm at the stage where all the info is pouring in but it hasn't quite arranged itself properly, lol!


    What would happen if after getting the btl mortgage and property, if the rent set wasn't 125% of the mortgage payment? Could the lender have a say?
  • amnblog
    amnblog Posts: 12,386
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    Lenders set the lending based on the estimated rental as assessed by the values. What you rent the property for after purchase is a matter for you. The lender is not concerned with the achieved rent as long as the mortgage is paid.

    There is App in the Apple Store called BTLcalc that can give you maximum lending if you input price and rent.
    I am a Mortgage Broker

    You should note that this site doesn't check my status as a Mortgage Broker, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • Thanks amnblog, I (think I) understand that the lender wants to be sure that the rental is viable and they base their lending on 125% of the rental value. But what I couldn't figure was how the rental figure that could be achieved was arrived at - and then it all seems to get circular and I get confused. Lol. :)
  • ACG
    ACG Posts: 23,616
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    A lot of the time it is based on an assumed rental calculation. I put a spreadsheet together to see what the rental income would need to be with various lenders (makes it quicker for me to discount lenders in one swoop).

    The figures do alter massively from one to next but generally speaking the rent would need to be 125% of whatever the mortgage repayments would be on an assumed interest rate of around 6%.

    So to put that in to figures:
    £100k mortgage at 4%, would be £333 per month on interest only.
    The lender would do their calculation based on 6% however, so £100k mortgage at 6% would be £500 per month.

    As the lender needs it to be 125% of that figure, the rent would need to be £625 per month.

    So your mortgage is costing £333 per month but the rent would need to be £625. The expected rental figure is taken from the surveyor - not an estate agent so just ensure you do your research.

    The assumed rate can vary, there are lenders who will do it as low as around 4.5% and others who will use 7%.
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a mortgage adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • ACG wrote: »
    So your mortgage is costing £333 per month but the rent would need to be £625. The expected rental figure is taken from the surveyor - not an estate agent so just ensure you do your research.


    Thanks ACG that's the bit that I'd missed reading. So, as long as the property was judged as being able to be rented out for £625/month the LL could ask whatever rent they wished, with the proviso the mortgage was paid, is that correct? :)
  • amnblog
    amnblog Posts: 12,386
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    What you actually rent the property out for is not a concern of the Lender.

    They can only offer based on what the valuer estimates as the market rate on the rental.
    I am a Mortgage Broker

    You should note that this site doesn't check my status as a Mortgage Broker, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • dimbo61
    dimbo61 Posts: 13,709
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    When the BTL mortgage company have the property valued they will pay a great deal of attention to the rent achieved with similar properties in the area.
    So if you are buying a 2 bed flat and other flats in the block rent out for £595 a month that is the value the surveyor will put in the report.
    You normally need a good deposit and fees can add up
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