Guaranteed Rent Income for Buy-to-Let Mortgages: Can It Cover the Costs?
The great thing about Guaranteed Rent for Landlords schemes, such as our own very successful and popular one, is that they take all the hassle and worry out of being a private landlord. After all, in these tough times, landlords are feeling the pain of the cost-of-living crisis just like everyone else. With little sign of any significant reduction in the Bank of England base rate – and hence mortgage rates – anytime soon, it’s hard enough to stretch rental incomes to cover the mortgage, let alone ongoing maintenance, repair and legal costs. And as the pressure mounts, the hope of expanding your business by investing in new properties dwindles… It’s equally difficult for anyone thinking of becoming a landlord with insufficient income to prove they can afford a mortgage – hence the burning question about buy to let mortgages based on rental income only.
Generally speaking, there’s no problem using income from your Guaranteed Rent scheme to cover your mortgage payments – if anything, the scheme is an asset because you’re certain to be paid the rent regardless of whether the tenants are in arrears, fail to pay or even if the property is unoccupied. When it comes to proof that you can afford the mortgage payments, though, it’s a different story. Like all mortgage deals, things are a lot easier if you’re in a position to pay a hefty deposit. In fact, for a buy-to-let mortgage, most lenders will require a deposit of 25%. Or, if you already own the property, you’ll need equity equal to at least 20% (and more usually 25%) of its value to re-mortgage for the purpose of letting. That said, depending on your circumstances and the location and nature of the property, there are specialists out there who might be prepared to consider deposits starting at 15%.
Of course, the deposit or equity is just the starting point. Frustratingly, lenders still need to be assured that you can afford the mortgage payments, just as with a residential mortgage. As mentioned above, the fact that you have a contract guaranteeing that you’ll receive a fixed rental rate for a specified period (usually up to five years), is helpful – but on its own it’s unlikely to clinch it. In return for all the many benefits of a Guaranteed Rent scheme, you of course receive a slightly lower rent than on the open market – so many lenders will expect you to have another reliable source of income, such as permanent employment for example. To give you an idea of the amounts involved, a common requirement is for at least £25,000 per year on top of rental income. That’s not always the case, though – as with everything else in financial services, it all depends on the person, the property, and the location.
So, all these ‘ifs and buts’ aside, it’s still perfectly possible to find buy to let mortgages based on rental income only – especially if your contracted rate gives you a comfortable surplus of, say, 25% over your mortgage payments!
These things are never simple and rarely easy – so why not talk to the Abel Living team about your plans for some clear, considered insights and advice.