How do Lenders Calculate Affordability Criteria on Buy to Let and Let to Buy Remortgages?
When remortgaging to buy a rental property, or to purchase a new residential home and let your existing property out, the rental income is the main affordability criteria.
Your tax bands impact this, and lenders will need the rent to cover 125% of the mortgage repayments, on a 5.5% interest rate for a basic rate taxpayer.
If you want to remortgage to invest in a BTL property as a higher rate taxpayer, the rent will need to be 145% or 160% of the monthly mortgage payments.
As an illustration:
You want a £200,000 mortgage to invest in a BTL property. At the 5.5% interest 'stress test rate', the monthly interest payment is £916.
If you are a basic rate taxpayer, the rent needs to be 125% of this value or at least £1,146 per month.
If you are a top rate taxpayer, the rent needs to be 160% of this value or at least £1,466 per month.
Each lender uses different rules and policies, so it is always critical to work with an experienced broker who can support you with understanding affordability criteria.