Published 28 January 2017 · Last reviewed 19 November 2019 · Older article — see current rates
Borrowing maximum on Buy to Let mortgage by choosing a lender with Best Buy to Let Mortgage Rental Calculation
Rental calculations have hardened considerably since January 2017 following the PRA review, and it has left Landlords questioning: what is the best Buy to let Mortgage Rental Calculation currently available?
Releasing equity from portfolios has been key to empire building and in the past we have since rental coverage as low as 100% at payrate allowing you to take out the maximum as a mortgage. In the last twelve months, most have been calculated at 125% based either on the payrate or a national figure. Generally speaking for individuals purchasing or remortgaging those heady days are over as the PRA has directed Buy to Let Mortgage Lenders to be more prudent against greater taxation in April and the prospect of eventual rate rises.
Can you still get a mortgage rental calculation based on payrate?
In short ‘yes’, however, these are now reserved for 5 years (or longer) fixed rates. Further discretion can apply to mortgage applications under a limited company rather than a personal name.
If this is not the case then notional rates, typically 5.50% currently will be used by Buy to Let Mortgage Lenders to provide the buffer.
Can you still get a mortgage rental calculation based on 125%?
In the main these are reserved for basic rate taxpayers otherwise a greater factor, typically 145% will apply.
You might think great I’m a basic rate taxpayer but fast forward to April when gross rental income counts towards your tax bracket? Lenders are duty bound to factor in future sustainability so are already applying the April changes in their rental assessment.
You can think laterally; if you partner is destined to be lower tax payer you could consider holding the property in their name. Some Lenders will also accommodate this strategy a stage further with properties held by tenants in common 99% / 1%.
Limited company mortgages are likely to remain at 125% for the foreseeable future. However, Lenders may start to question the company’s intentions i.e. to pay regular profit to shareholders rather than simply retain properties for capital growth, as net dividend income also set to be taxed for the first time.
My rental calculation does not fit my mortgage – Is there a way around this?
Some Buy to Let Mortgage Lenders will factor in surplus disposable earned income (see my separate blog on the subject).
Also if it is a straight-swap remortgage ‘pound for pound’ Buy to Let Lenders have the authority from the PRA to override their standard position on rental calculations to avoid an anti-competition buy to let remortgage trap being created.
What is the Best Buy to Let Mortgage Rental Calculation on the market?
Well, products come and go but we are quoting this 2 Year Fix on a regular basis at the moment which applies 125% @ 5%. It allows borrowing up to 80% as Landlords want to draw out as much as they can whilst the going is still good.
Subsequent: 5.50%
Features / description:Rental calculations from 125% at pay rate (depends on tax banding). Low early repayment charge from year 2 onwards.