The system is set up for rents to increase… ? From a Landlord

TeaBee72

I have a BtL property. One property with it being tenanted. I consider myself a decent landlord and make sure everything is done right. 

Our mortgage tripled 2 years ago meaning o made almost no money each dear. 

I decided to not raise our rent this year to support tenants. 

I have savings from previous years and am happy with the risk.

The banks have now said I don’t meet the stress test for a remortgage - basically the rent we charge isn’t enough. 

I find it strange as a landlord we are happt to keep rent low but to appease the banks affordability we have to increase it - this driving up rents. Is the system rigged? Or am I cynical 

El_Torro

The mistake you're making is that you are not looking at BTL as a business. Banks that offer BTL mortgages do not make this mistake, which is why they run affordability checks. If you want to run your business at a loss then that's your prerogative, banks prefer to stay out of such situations though.

Is the rent you are charging significantly below market rate? If so it's no surprise that the rent you are charging doesn't cover the mortgage repayments.

TeaBee72

El_Torro said:

The mistake you're making is that you are not looking at BTL as a business. Banks that offer BTL mortgages do not make this mistake, which is why they run affordability checks. If you want to run your business at a loss then that's your prerogative, banks prefer to stay out of such situations though.

Is the rent you are charging significantly below market rate? If so it's no surprise that the rent you are charging doesn't cover the mortgage repayments.

So it is below market rate. We made good profit a couple of years ago and decided we would do a couple years on a fixed rate of making a low profit ( enough to get by but after tax we’re talking 2/3% ROI versus say 10% market standard. We will be looking to raise rent - not cause we want to but to satisfy the banks. Isn’t that sad though? 

flaneurs_lobster

TeaBee72 said:

 We will be looking to raise rent - not cause we want to but to satisfy the banks. Isn’t that sad though? 

It is, indeed, sad. Your attempts to be a socially responsible landlord are laudable.

If the property that you let were mortgage-free then, of course, you could choose to charge any rent that you like (or none at all). As long as your ownership of the property is tied to a business mortgage then the bank's rules apply.

Assume you have tried more than one lender?

silvercar

 Moving this to the mortgage board, in case anyone can offer advice.

MSE forum isn’t the place to discuss government policy.

Mr.Generous

silvercar said:

 Moving this to the mortgage board, in case anyone can offer advice.

MSE forum isn’t the place to discuss government policy.

Government? More the banks policies surely? 

Wonder if the calculation takes loan to value into account? If so might be worth a new valuation.

ACG

There are lenders who will use market rent rather than rent payable. 
There are also lenders who will allow you to top slice - ie if the rent is not enough but you have income from other places, they can use that to help bridge the gap. 

But the problem is that rates have increased and so in turn have stress testing rates. 

In essence though, you have gone to the wrong lender for your circumstances. BTLs are not really my thing so when I say this its not with ulterior motives... speak to a broker. They will help you navigate your options. If the rates are significantly more you might want to increase the rent. But it might be possible to get a decent rate and keep the rent reasonable also. 

Alternatively, if your current lender offers rentention deals, you might be able to solve the problem without having to go through a full application. 

grumpy_codger

El_Torro said:

The mistake you're making is that you are not looking at BTL as a business. Banks that offer BTL mortgages do not make this mistake, which is why they run affordability checks. If you want to run your business at a loss then that's your prerogative, banks prefer to stay out of such situations though.

Well, affordability is income vs outgoings, isn't it?
Profit is income vs mortgage interest that is only a part of outgoings. A small part if the current LTV is small. 
So, even if income is close to outgoings, this business can be profitable.

TeaBee72

Thanks for your replies. Thankfully some other lenders have different criteria and the remortgage will be no problem, just a slightly higher rate. So no problems for us but strange a policy set up to protect could actually being having an adverse affect