Top 10 Reasons A Buy To Let Mortgage Application May Be Rejected
After the Mortgage Sector Review in 2014, getting a mortgage has become tougher than before due to regulatory requirements. It is easy for an Buy To Let mortgage application to be rejected if it is not done carefully or not meeting lenders criteria. Hence, it is important to understand the most common reasons for any mortgage application to be rejected and prepare your application carefully. Here are top 10 reasons a buy to let mortgage application may be rejected:
Top Reasons Why Your Buy To Let Mortgage Application Could Have Been Declined:
The BTL mortgage application has not been done correctly:
This is rather basic, but one of the most common explanations is that a lender refuses a buy to let mortgage (BTL) application, and mostly because there is clearly no paperwork available or not enough information provided during application. If you already have a current mortgage and in particular if you are already listed as a ‘portfolio’ landlord with four or more mortgage properties. You will be asked for quite a bit of details about your other investments. Make sure you know exactly what is needed and put together a checklist so that you don’t miss out on anything.
The rental revenue is not stacked up:
Buy to let lenders may require the rental income to exceed the monthly loan amount by between 25 % and 45 % (Rental Ration Cover between 125% to 145% ) and generally stressed at 5.5 % by most lenders. So, if the monthly loan repayment of the mortgage amount you’re trying to borrow is £500 then the achieved monthly rental income of the mortgaged property has to be between £625 and £725 ( Surveyors confirmation required on the rental income), depending on the level of ‘interest cover ratio’ the lenders criteria.
Also Read: Understanding Remortgaging with Precision
Too heavily leveraged to be a ‘portfolio landlord’:
When you have four or more properties and are known as a ‘portfolio landlord,’ the overall borrowing on the whole portfolio must be up to a cap of 75%, it might be lower in case of some lenders. So, if you already own 3 residential properties and the overall loan to value is less more than 75%, for example, a fourth mortgage may be rejected if the capital valuation has not risen enough to lower the LTV by less than 75 %.
Hit the maximum number Buy to let mortgages:
Many lenders would have a limited amount of borrowing that would allow one person to borrow. Sometimes it’s a cap on the number of mortgages and sometimes it’s a limit on the overall sum of Loan amount. Some may also take into account the number of mortgages you have from other lenders, and if they believe you are too vulnerable, they may refuse to lend.
Down value of the property, you choose to purchase:
If the surveyor puts a lower market value on the property than the purchase price you have negotiated, the lender may reduce the loan amount requested and may not offer the loan amount requested originally. Down valuations are more common when the economy has been experiencing low time due to inflation. For example, Covid-19 has impacted the UK’s economy and therefore, the property value has also been impacted, which may result in surveyors undervaluing the property you are planning to buy.
Also Read: Benefitting from Prime Minister’s Mortgage Scheme for First Time Buyers
Age could be a factor:
Age is a consideration in acquiring a buy to let mortgage and buy to let investment, both on the upper and lower sides. At the young end, the minimum age is 18, but don’t be surprised if you run into lenders who have more prohibitive laws in their small prints. Some lenders may have a minimum age requirement of more than 18 which might need to be considered before putting an application through. Going on-wards, mortgage lenders would usually be happy to lend up to the age of 75, although others might be as high as 85.
Your credit history may let you down:
Although it’s not difficult to get a buy-to-let mortgage with a bad credit history, many applicants are not aware of this fact because they are not aware of most lender’s criteria as this is not their expertise. Many of the First time Landlords struggle in their first BTL application because they make their applications without even contacting a mortgage broker, and many lenders would not entertain those with anything other than a squeaky-clean background. A mortgage broker knows this and most specifically, he knows who’s going to consider those who’ve had prior credit issues. Specialist lenders are out there, so you certainly need to know who they are before you apply, or your offer for a loan can be denied.
Also Read: Mortgage Broker in Purfleet
Living in the United Kingdom:
Most lenders do not lend to the applicant who has lived in the United Kingdom for fewer than two years, but not all of them. Many mortgage lenders will not lend to you if you have just recently arrived in the UK, but there are those who will.
Payday Loans:
Payday loans are classified on the credit history for six years, even though you pay them off on time. Any lenders might think that a payday loan means you’re going to fail to handle funds, so they might be less likely to lend to you. But not all lenders are going to turn you down simply because you used one.
IVA’s and Bankruptcy:
An IVA is an Individual Voluntary Agreement that is provided to individuals in desperate financial circumstances to allow them to refund the money they have owed to all the lenders or credit companies. These, along with being deemed bankrupt, are two of the most off-putting items to lenders.
To better ensure you don’t get stuck in one or more of these above explained reasons, Mountview FS can advise on Buy to Let Mortgages and Landlord Insurance and can also provide you with brief information about lenders terms and conditions being BTL property owners. For more information, you can call us @ 02080950120 or send us your requirements on info@mountviewfs.co.uk!
