Affordability Criteria for Landlords' Income

Tom39

Dear Forum,

I receive a standard Govt pension of some £10K and - as a self employed landlord - also receive a comfortable £25K to £30K net income (ie net of mortgaging and other costs) from five (5) B2L properties.

I subscribe to MSE's Credit Club which gives me a "999" credit rating but only a "Very Weak" affordability rating for further borrowing.

Because my overall net income is a comfortable £35K to £45K, given that my own home is mortgage-free, my wife has a decent income, and I have no financial dependents, I would expect my affordability criteria to be somewhat higher than "Very Weak". 

I suspect that MSE's algorithm for affordability fails to factor in that my declared rental income is NET of mortgage costs ie the algorithm is incorrectly assuming that I am financing five B2L mortgages from my overall net income of £35K to £45K.

Has anyone else experienced this issue and/or what recommendations does the forum have to overcome this issue?

All comments welcome. 

Tom D

dresdendave

Not really sure that there is any "issue" that needs to be overcome.
No potential lender cares how MSE rate you, they will make their own decision based on your credit history and the information you supply on the application form.

Thrugelmir

Your wife's circumstances are irrevelant as not her that they are lending too. How much do you owe on the 5 BTL mortgages?  

Grumpy_chap

Tom39 said:

Dear Forum,

I receive a standard Govt pension of some £10K and - as a self employed landlord - also receive a comfortable £25K to £30K net income (ie net of mortgaging and other costs) from five (5) B2L properties.

I subscribe to MSE's Credit Club which gives me a "999" credit rating but only a "Very Weak" affordability rating for further borrowing.

Because my overall net income is a comfortable £35K to £45K, given that my own home is mortgage-free, my wife has a decent income, and I have no financial dependents, I would expect my affordability criteria to be somewhat higher than "Very Weak". 

I suspect that MSE's algorithm for affordability fails to factor in that my declared rental income is NET of mortgage costs ie the algorithm is incorrectly assuming that I am financing five B2L mortgages from my overall net income of £35K to £45K.

Has anyone else experienced this issue and/or what recommendations does the forum have to overcome this issue?

All comments welcome. 

Tom D

Unless you gave the credit club access to your open banking the credit club has no data to assess affordability against.

Shakin_Steve

I'm taking it that you don't actually want/need a loan, so why worry? You've got to admit that your circumstances are somewhat different to the vast majority of people, and people in your position would always be better talking to a lender if need be, not taking ant notice of these so called 'ratings'.

Tom39

Dear Forum,

Many thanks for your replies.

MSE requires affordability data to be reconfirmed regularly post log-in, which data includes relevant information such as total income, wife's income, dependents etc.

I take the point the issue I posted above could (at least in some cases) be discussed with the financial organisation concerned although most applications (up to and including mortgages) are necessarily online with an almost immediate decision in principle (approved/ not approved). Once an adverse decision (even in principle) is taken it is "swimming against the tide" to reverse to attempt to reverse it (though it is not, I would concede, impossible).

Thanks again and further comments welcome.

Tom 39

Ebe_Scrooge

Tom39 said:

MSE requires affordability data to be reconfirmed regularly post log-in, which data includes relevant information such as total income, wife's income, dependents etc.

But how the MSE tool views you has no bearing on how a lender will view you.  It is, at best, a very rough guideline.

Tom39 said:

I take the point the issue I posted above could (at least in some cases) be discussed with the financial organisation concerned although most applications (up to and including mortgages) are necessarily online with an almost immediate decision in principle (approved/ not approved).

2 things to bear in mind.  When you make a formal application for a loan, they will perform a search on your credit file.  They are therefore in full possession of all relevant facts, and will make a decision based upon those data.  An eligibility calculator does not have access to your credit record, so can, at best, only ever give you a rough estimate.  Added to which, all lenders have different criteria.

Tom39 said:

Once an adverse decision (even in principle) is taken it is "swimming against the tide" to reverse to attempt to reverse it

I'm not quite sure what you mean there.  If you apply for a  loan, the lender will assess you against their criteria, and either approve or decline your application.  The outcome of their decision will not affect future application with other lenders - all a lender can see is that a search was performed, the cannot see the outcome.  (I will caveat that by saying that multiple searches in a short space of time can ring alarm bells for lenders.  But the main point is that future lenders will only see a search being performed, they won't know whether you were accepted or declined).

Thrugelmir

You didn't respond to my earlier question.

In broad terms your income could be impacted by a rise in interest rates or void rental periods. At worst a combination of them both. 

Tom39

My responses to the additional comments above.

Ebe_Scrooge.
1st comment:
As I understand it, MSE is attempting to mimic the assessment process that is general practice amongst lenders. In mimicking that process, I am concerned that that process (for both MSE and the lenders) can sometimes lose sight of the fact that mortgage payments from gross (pre-tax) income not post-tax income and that their conclusions regarding the affordability of the borrowing applied for could therefore be unduly pessimistic. I am not (repeat not) suggesting that lenders follow MSE per se.
2nd comment:
In my experience, most non-mortgage applications simply request personal income/ personal outgoings/ family income/ family outgoings to assess an applicant's affordability rating, which is not an in-depth process. (Mortgage applications are in depth and the true affordability picture emerges)
3rd comment
Once a lender gives a decision, whilst that may in some circumstances be "appealed", the very fact that it is an appeal represents "swimming against the tide" as people and organisations being what they are, are more inclined (in my experience) to endorse their first position rather than amend it. Howsoever we might wish human nature to be  otherwise. A rough analogy would be that I would prefer to be found innocent in court on first trial than seek a retrial.

Thrugelmir
1st comment:
Family income is a factor taken into account by lenders assessing affordability in my experience. They frequently ask for number of dependents too.
2nd comment
I haven't suggested that there are not other factors affecting affordability, my query was regarding the possible factor that mortgage payments for a landlord are paid from gross (pre-tax) income not post-tax income and that overlooking that fact could seriously underestimate an applicant's affordability rating.

Thank you again for the comments.