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Lenders will generally require the rental income to cover between 100% & 125% of the Investment Loan payments if the mortgage is paid at an interest rate of 5.5%. To determine how much, you could borrow you take the annual rental amount, divide it by 5.5% then divide the answer by 100% / 125%. For example, with an annual rental income of £22,000 your calculation would be (£22,000 / 5.5%) / 125% = £320,000 (where the lender is looking for 125% Cover). Some Lenders will sensitize the annual rent to allow for voids and costs.
Investing through a limited company (SPV)
If you are considering investing through a limited company (SPV), you might be under the impression that there is a minimum term a company must be trading. However, there is no such requirement. In truth, you can get a mortgage arranged before setting up an SPV. A certificate of incorporation will be required before the mortgage can be completed.
You, as director, are the lender’s primary focus. They will be looking to ensure you can meet the terms of the mortgage. Your income, credit history, investment experience, job, and various other points are examined in the same way as a personal mortgage.
Some lenders will require Directors to give personal guarantees, meaning you will be personally obligated to fulfill the company’s debt. This would be the difference in the value of the property against the amount owed.
Similar to Residential Investment, lenders will generally require the rental income to cover between 100% & 150% of the Investment Loan payments.
In addition to the other area’s covered under Residential Investment, a key area for Lenders will be terms of the lease to tenant (rental / remaining term and break clauses) and tenant quality.
HMO’s (Houses of Multiple Occupancy)
As with Residential & Commercial Investment, lenders will need to be comfortable with individuals experience in this sector.
Additionally, due to this sector generally seeing higher costs (refurbishment etc.) then lenders tend to sensitize rental to a greater extent when considering the level of Investment Loan.
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