Buy-to-let lending is priced and assessed on the property's rental income rather than your salary. Lenders apply a stress test — typically requiring rent to cover somewhere around 125% to 145% of the mortgage payment at an assumed rate — and the exact figures vary by lender and by whether you hold the property personally or through a company. That variation is where advice earns its keep.
How the rental stress test works
The lender takes the expected monthly rent, applies a coverage ratio and a notional interest rate, and works backwards to a maximum loan. Two lenders looking at the same property can reach very different numbers because they use different ratios. If a case is tight, the right lender is often the whole answer.
Personal name or limited company?
Since the phasing out of full mortgage interest relief for individual landlords, many buy-to-let purchases are made through limited companies. Which is better depends on your tax position, how long you intend to hold, and whether you're building a portfolio. This is a question for your accountant as well as your adviser — the mortgage follows the structure, not the other way round.
What lenders look for
- Realistic rental valuation, confirmed by their own surveyor
- Deposit, commonly 25% or more
- Whether you already own your own home
- Portfolio size, for landlords with several properties
- Property type — HMOs and flats above shops are specialist