Buy to let mortgage calculator how much can I borrow

Buy to let mortgage calculator how much can I borrow

19 Oct 2020

When you invest in a buy to let property, you invest in a residential property, like a house or a flat, to rent it out to others. It means that you become a landlord, and you get a regular monthly income as rent which provides surplus income and serves as a supplement for your retirement. 

In addition, such investments offer capital growth as the property appreciates over time, getting you a profit when you eventually sell it. It may sound uncomplicated, but many variables can lead you to invest in a home that you could make a loss, just as you could with any other kind of investment.

BTLs have different eligibility requirements than standard residential mortgages as they are considered risky for the lenders.

Compared to standard mortgages, the BTLs are assessed on profitability, where one expects the rental yield to cover the mortgage costs. Therefore, you should use the rental calculator to see if you will be able to get the desired amount as a mortgage or not.

Standard criteria used to calculate the interest rates to purchase mortgages are based on earnings and monthly outgoings.

When you apply for a buy to let mortgage, you need to check the lenders' criteria, the cost ( interest rates) and the hidden costs. A loan term can be up to 20 to 30 years. A longer-term help reduces monthly repayment costs, but the total amount you spend on repayment will be more in that case.

What Is Buy To Let Mortgage?  

A buy to let mortgage is a loan secured against a residential investment property where the mortgage lenders evaluate the buyer's risks and affordability. The process is different from first-time home mortgages; therefore, it is almost always necessary to get professional guidance for an investment property. 

You may have to get permission from your lender to rent out the house, and if you do not get approval, it can put you in breach of your mortgage contract. The lender may call off the loan early. The amount you need to purchase the home and the amount for the mortgage depends primarily on the rental rate you would be able to get. 

How much you can borrow for a mortgage in the UK is generally between 3 and 4.5 times your income. If you want to estimate how much you can borrow in the UK, you need to use a mortgage borrowing calculator. 

Since the 2008 recession, mortgage lenders have become more stringent in lending money for rental properties. They make multiple affordability checks before offering the loan to ensure you have the earnings to make monthly repayments.

They check your credit scores and your income, outgoings and total debts. Buy to let the property go through the credit file to ensure you will be able to pay back the loan even if the interest rates are increased in the future. 

They conduct a 'stress test' where they try to see if the interest rate increases in future by up to 4% above the current rates, then whether will you be able to handle the additional financial burden or not.

Some buyers will get a loan from the bank only if they have a current account in the bank or when they have offered a very large deposit. 

To know about the precise maximum mortgage amount, you can apply to get an agreement where you get a theoretical figure that a lender may offer you as a loan. It is the amount expressed as a percentage of the property value. 

So, for example, a 75% LTV mortgage on a property valued at £100K would mean borrowing £75K. Generally, a lower LTV provides access to competitive rates and a wide scope of lenders.

In the buy-to-let property investment market, 75% LTV is the most popular level to purchase. Mortgage products can go up to 85% LTV, but the interest rates may be high, so the monthly repayments are significantly higher.

Buy To Let Mortgage Calculator In The UK

If you want to invest in a rental property, you should try to see that the rental income should be able to cover the mortgage interest plus the cost of running the property. It should be a self-funding investment. The lenders mostly assess the affordability to calculate the mortgage interest payments. The rent should be higher than a certain percentage of the interest so that the income covers the costs.

It is called the interest coverage ratio or the rent to interest (RTI), and the calculations for housing mortgages sometimes vary from one bank to another. Mortgage lenders use this calculation for a stress test to ensure that the expected rent will cover the mortgage payments and other costs of running the property. So the amount of money one borrows from one lender differs based on this calculation. 

If, as per the mortgage agreement, the interest coverage ratio is 145% at the rate of 5.5 per cent, the expected rental yield for the property must be sufficient to cover at least 145%. 

The buyer should deposit 25 to 40% of the property value. 

Buy To Let Mortgage Rates

Mortgage interest rates are usually higher for BTLs as compared to residential payments. It does not mean the lender does not consider the situation where the property will be empty – not generating any rent. So the lenders will have higher rates for buy to let mortgages than standard mortgages. 

Also, the arrangement fees for BTLs are generally higher than standard ones. It's not unusual for conveyancing or the valuation costs to be more elevated for buy to let mortgage applications.

Yet, just like any form of a loan, the rate can differ based on the amount you will deposit and the loan's risk that you could bear.

Many lenders choose a straightforward calculation that depends on their estate's mortgage payments to assess how often they borrow and their interest rate.

Lease pressure assessments differ across lenders, but selecting the cheapest mortgage rate may be difficult when there seem to be plenty of choices. 

Nowadays, the better mortgage buy-to-let is accessible in terms of loans and higher payments. If you are unsure if you want to have a fixed or a variable rate mortgage, check the charges associated with both types of options. Fixed rates will keep your interest and monthly amount fixed for a specified term (like five years). 

The lender changes variable rates depending on the standard base rate, so the monthly repayments and fluctuations can increase or decrease the repayment amount.

Some fixed-rate mortgages have early repayment charges, and once the fixed-rate term is over, the rate may increase significantly.

There is an extensive range of mortgage costs in the UK, where finding the best deal to fit your conditions is often challenging. At the same time, there are many high street lenders, some mortgage lenders where you cannot apply directly. 

These are called intermediary-only lenders. Instead, whole-of-market brokers, like mortgages for business, access those lenders, and they offer products that you otherwise will not even know about.

To know more about it, one should contact a broker or a professional.

A few key distinctions between standard mortgage and buy to let mortgage are given below:

Costs – Administrative / Other Charges 

The buy to let mortgage agreement fee will be more than the standard mortgage cost because contract payments are calculated as a proportion of the amount you borrow instead of a fixed rate. Commuting costs also seem to be marginally higher.

Rate Of Interest 

Buy-to-let mortgages and interest rates are typically more than any standard residential property mortgage. Therefore, the lenders consider it a risky loan where the affordability is calculated from the rental income. 

The stress test involves steps to see if the buyer will be able to make repayments if the rates increase in future, or they may also see the ability to repay when the property remains void for some months.

Valuation Of Properties

After the 2008 crisis, the lenders used strict terms to valuation a house as the risk factors were higher.

How Does This Buy-To-Let Calculator Work? 

The amount you are eligible to borrow on a buy to let mortgage is mainly based on the monthly rental that the house is expected to fetch and the deposit you offer. You can use a buy to let mortgage calculator to get an idea of what you will be eligible to borrow based on the expected rental income. 

Of course, some lenders are more generous than others so the estimate may vary from one bank to another, and some lenders will want to look at how much earned income/savings you have from employment or self-employment.

For example, if you had enough saved up for a property worth £100K and if the property value increased by 10% each year, then five years later, you could sell it for £150K, and you get a total profit of £50,000.

Suppose you're considering purchasing a buy to let property. In that case, you'll have to consider all of the usual costs of buying a property, including the conveyancing charges, solicitor fees, tax on rental income beyond the price of the property itself, and buying furniture. 

If you live in England, you'll have to pay extra 3% stamp duty. If you live in Scotland, you'll have to pay land and building transaction costs which is an extra 4% for property worth over £40,000.

In Wales, you pay 3% extra on top of the current rates for properties over £40,000.

Buy to Let Mortgages are usually calculated based on rental income; if the maximum rental on a  buy to let property was equal to the interest-only mortgage payment for the property, the rental coverage would be 100%.

How Big A Mortgage Can I Get? 

Mortgage lenders usually need your rental income to be at least 125% of your monthly mortgage payments or interest. Some banks require a higher minimum rental income, like over 140%. They will use a managed rate and not your actual mortgage product rate to get the monthly repayment amount, which is often 5.5 per cent, and you will also need to meet the lender's minimum salary requirements. 

If your gross annual income seems to be £50k, they can grant you a loan of up to £250k, but it depends on your affordability evaluation.

Unless the borrower confirms your ability to pay back, they will not approve the loan; instead, they can restrict the amount you borrow to a maximum limit.

One can use the mortgage calculator to estimate the size of monthly payments if interest rates increase or decrease in future.

Also, you may have to calculate the number of recurring contributions, including separate personal and housing costs and profits, into consideration. 

How Much Can You Borrow For A Mortgage? 

Let-to-buy mortgage is not an option for everyone. Before you even consider one, you'll need first to make sure you'll afford two lots of mortgage payments every month. In addition, you will need to have adequate equity in your first home to remortgage it successfully.

How much can you borrow for a mortgage depends on many factors; while applying for BTLs, you need to see the minimum loan to value (LTV) with a buy-to-let mortgage is usually 75%, which means you'll be able to get 75% off your first property's worth from a lender. After that, you need to provide the rest as a deposit.

Having two mortgages can put a lot of pressure on your monthly earnings, so one must make sure they can afford to pay off both repayments every month and save for emergencies.

Who Can Get A Buy-To-Let Mortgage? 

Whether with an outstanding mortgage, you already own your home, if you have a good credit record and aren't overstretched on your debts, and if you earn £25,000+ a year, you can get approval. Nevertheless, if you earn less and your debts are overburdening on your monthly earnings, you may struggle to get a lender to approve your buy-to-let mortgage.

Other measures are used to approve such loans like there is often a maximum age of 70 (sometimes less) for filling out the application form. In addition, you must be able to provide evidence that you're buying another house (second property) to the bank or lender offering the amount.

Also, one cannot invest in other properties when the first property investment is up for sale and is not ready for leasing.

What Is A Good Return On A Buy-To-Let Mortgage?  

The lenders may get your ROI per cent from your total earnings and the investment cost.

A good rental yield depends on the property's location, other costs, and the rental market condition. The top 25 rental locations in the UK deliver rental yields between 6.99% and 10.00%. 

The cost of buying a second residential property can be higher than the first, and the investor should know it is a long-term investment, and their money will be tied up for a long time. 

Do I Need A Buy To Let Mortgage To Rent Out A Property?

You can buy a property outright in cash where you may not need a mortgage. However, getting a mortgage to invest is like "leveraging" even when you are confident that you can afford a property with your current savings, leveraging is worth considering an option. Of course, you can rent out a property without a buy to let mortgage if you own it, but experts recommend using the method of leveraging to buy a BTL.

What Income Do I Need To Buy A Mortgage? 

You can usually get a mortgage online, via phone, or apply to a bank.

You'll need to provide the basic personal details, including your salary details, how much you would like to borrow, and all of your monthly costs approximately add up to. Most buy to let lenders require rental coverage to be over 125% to 140%, based on a "notional" interest rate of between 3-6% or higher in some cases. 

If you provide 20 to 45 per cent of the full purchase price as a mortgage deposit, you get favourable interest rates. Otherwise, you may have to pay a higher rate of interest. 

The mortgage lender checks your credit file to see your financial condition and your ability to repay a loan to calculate if you are eligible to get a loan or not.

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