Buy-to-Let (including Let to Buy)
The Society uses an Interest Coverage Ratio (ICR) and a stressed interest rate to calculate affordability.
- Basic rate tax payer – 125% ICR
- Higher rate tax payer – 145% ICR
- Additional rate tax payer – 150% ICR
2 Year Term
- Stressed interest rate for purchase, capital raising remortgages and Let to Buy 5.5%
- Stressed interest rate for like-for-like remortgages 5.0%
5 Year Term
- Stressed interest rate for purchase and capital raising remortgages 4.5%
- Stressed interest rate for like-for-like remortgages 5.0%
- Stressed interest rate for purchase and capital raising remortgages for Let to Buy 5.5%
All
- Background rental property portfolio must generate a 145% ICR at a stressed interest rate of 5.0% regardless of tax band status. This can be evidenced through the completion of the Existing Property Declaration Form.
- Stressed interest rate where SVR is taken of SVR + 2%.
Rental income will be independently verified by the Society’s valuers. Additional/surplus sources of income will not be considered as part of the affordability assessment on BTL applications, however will be considered as contingency in the event of void periods.
Holiday Let
We assess holiday let affordability using an average of the high, mid and low expected seasonal rental income. A reputable holiday letting agency must provide confirmation in writing. You can find our list of acceptable letting agents here.
The letting agent should confirm in writing a high, mid and low expected seasonal rate. We’ll then take an average of these seasons over a 24-week period to calculate the annual rental income.
As an example, if high season is £900, mid-season is £620 and low season is £400, we’d use the average of £640 over 24 weeks to give an annual rental figure of £15,360 and apply this to the relevant rental coverage calculation.
For purchase and capital raising remortgages:
The calculation is £15,360 / 12 months = £1,280 monthly rental
£1,280 / 1.45 = £882.75 / 0.055 = £16,050
£16,050 x 12 therefore gives a maximum lend of £192,600
For like-for-like (no additional borrowing) remortgages:
The calculation is £15,360 / 12 months = £1,280 monthly rental
£1,280 / 1.45 = £882.75 / 0.05 = £17,655
£17,655 x 12 therefore gives a maximum lend of £211,860
If the property does not meet the minimum rental coverage (ICR basis), we'll consider the individual's ability to support the mortgage under our second home affordability criteria. For these applications, where the applicant is employed, the last three months' bank statements and last three months payslips will be required. Where an application is received for a self-employed applicant, we will require 2 years proof of income.
HMO
Rental income will be independently verified by the Society’s valuers and must be at least 165% of the interest payable on a stress rate of;
5.5% for purchases and capital-raising remortgages; and on a stress rate of 5.0% for like for like remortgages.
For Large HMO purchases only a stress rate of 5.75% applies.
The rental value will be based on 100% occupancy of the lettable rooms.
The Society will consider rental income generated from tenants in receipt of benefits.
Background Buy to Lets with other lenders should generate rental cover equivalent to 145% of the interest payable on a rate of 5.0% for non regulated applications and 5.5% for regulated applications. This can be evidenced through the completion of the Existing Property Declaration Form.