Confused by mortgage decline

dlk

I just wondered if anyone in the mortgage industry ie a broker could shed any light as to why this decline might be the case.

Its a buy to let I own.

Value £130
Mortgage 66k 

I asked for further borrowing of £23k for home improvements at my own home which they said was fine. The LTV is fine.

However, its been with the same tenant for many years who's a perfect tenant and I only charge £600pm.
She said that was what the application fell down on and they could only lend me an additional £75 at that rent. Yes, £75 not £75k.

The total mortgage repayments would have been £267pm. She said had the rent been £700pm it would have been approved so the decline is down to rent coverage. 

£267 mortgage rent £600?
Thats more than 200% rental coverage so I dont get it. Am I missing something or does it seem a bit odd.

Brie

Perhaps your other income was sufficient?  

amnblog

This is not simply about rent coverage.

Most likely hurdle is that you are a higher rate tax payer and this makes the 'affordability' calculation far tighter.

Your current mortgage rate and term can also be a factor.

dlk

Brie said:

Perhaps your other income was sufficient?  

She didn't ask for my income

dlk

amnblog said:

This is not simply about rent coverage.

Most likely hurdle is that you are a higher rate tax payer and this makes the 'affordability' calculation far tighter.

Your current mortgage rate and term can also be a factor.

I'm not a higher rate taxpayer and she didn't ask for my income. She said it was just the rent amount versus mortgage payment. The £267pm i mentioned was including my existing payment.

MeteredOut

dlk said:

amnblog said:

This is not simply about rent coverage.

Most likely hurdle is that you are a higher rate tax payer and this makes the 'affordability' calculation far tighter.

Your current mortgage rate and term can also be a factor.

I'm not a higher rate taxpayer and she didn't ask for my income. She said it was just the rent amount versus mortgage payment. The £267pm i mentioned was including my existing payment.

Who was "she"? Was she making the decision, or was a computer? If the latter, its possible she would not be able to tell you exactly why it was declined. Perhaps the computer told her that, or perhaps she postulated that.

ACG

You have probably gone to the wrong lender for your circumstances. 
You say the rent is 200% of the repayment, but mortgage lenders stress test - typically 125-145% of maybe 6% (rather than the rate payable). 

Some lenders will use market rent (I am doing one at the moment and they never asked about the rent, they left it to the surveyor to determine). But other lenders can use your income to help affordability. 

Speak to a broker. 

But you have not been declined, just the amount you want has been determined unaffordable. If you wanted a straight pound for pound (or an extra £75) they would do it... Although the extra £75 you would probably lose in costs. 

jimjames

dlk said:

amnblog said:

This is not simply about rent coverage.

Most likely hurdle is that you are a higher rate tax payer and this makes the 'affordability' calculation far tighter.

Your current mortgage rate and term can also be a factor.

I'm not a higher rate taxpayer and she didn't ask for my income. She said it was just the rent amount versus mortgage payment. The £267pm i mentioned was including my existing payment.

It's not your current rate that's relevant it's the higher example rate that's used and has to be higher than rent.

dlk

MeteredOut said:

dlk said:

amnblog said:

This is not simply about rent coverage.

Most likely hurdle is that you are a higher rate tax payer and this makes the 'affordability' calculation far tighter.

Your current mortgage rate and term can also be a factor.

I'm not a higher rate taxpayer and she didn't ask for my income. She said it was just the rent amount versus mortgage payment. The £267pm i mentioned was including my existing payment.

Who was "she"? Was she making the decision, or was a computer? If the latter, its possible she would not be able to tell you exactly why it was declined. Perhaps the computer told her that, or perhaps she postulated that.

Yeah you're right, it was a computer decline however the lady put into the computer a hypothetical rent of £700pm and it accepted the additional borrowing I requested hence why I presume it has to be the rental coverage.

dlk

ACG said:

You say the rent is 200% of the repayment, but mortgage lenders stress test - typically 125-145% of maybe 6% (rather than the rate payable). 

Yes but at the amount they can agree up to even if they use an interest rate of 7.5% it would still be at the 145% rent to mortgage ratio. Thats why I was a bit baffled by it, I've not heard of anywhere using more than 7.5% interest rates as their stress test.

ACG

£90k at 6.5% is £487. 145% of that is £700. 
Your rent is £600. 
145% of 6.5% would be around £75k mortgage. 

Speak to a broker. There is probably a solution and at normal rates but your options will be limited.