Buy to Let - case study
Helping to expand Darren’s portfolio with the right mortgage
Darren was a 67-year-old retired landlord looking to add to his portfolio. He approached the high street lender he made his last two purchase applications with but, due to a recent criteria changes, they required borrowers to have £25k of annual income that isn’t derived from property. They also were no longer taking applications from portfolio landlords (anyone with more than three mortgaged properties).
Darren had waited three weeks from having his offer accepted to then find out he needed to start from scratch. Meanwhile the vendor and agent were putting pressure on him for a survey to be booked.
When Darren approached Caenstone he wasn’t aware of the tightening of mortgage options for portfolio landlords and the increased scrutiny his application would receive. The last application he’d made, he just needed to show he had a 25% deposit and a bank survey of the property to ensure it was suitable security for lending.
We found a lender that applies a more relaxed rental coverage when the borrowing is taken on a longer-term fixed mortgage product.
On top of everything else, in 2017, the Prudential Regulation Authority had introduced a recommendation that the rent on a property must cover at least 145% of the mortgage payment, with an applied interest rate of 5.5%. It is worth noting that there are exceptions to this calculation and this is where we were able to get things moving for Darren.
The lender Darren originally approached used the following calculation to work out how much he could borrow based on the estimated rental figure: Annual rent / 5.5% / 145%.
- Property value: £425k
- Rental estimation: £18,000pa / £1,500pm
- Required mortgage: £318,750 (75% LTV)
- Max lend based on a recommended rental cover: £225k
Through taking the time to understand Darren’s position, we determined that it was his preference for a fixed mortgage rate for 5 years. We found a lender that applies a more relaxed rental coverage when the borrowing is taken on a longer-term fixed mortgage product.
As a result, Darren was able to borrow the 75% he needed to complete his purchase.