Things to consider before applying for a buy-to-let mortgage

That’s according to Andrew Turner, chief executive of specialist buy-to-let broker, Commercial Trust, who has offered his ‘dos and don’ts’ on applying for mortgages in this sector.

By providing an insight into lender criteria he hopes to help potential buy-to-let purchasers or those remortgaging to stay on the right track with their investment.

Take the property off the market

His first piece of advice is for anyone who is shifting over to buy-to-let from residential ownership. This is a common route for landlords, but many may not realise that lenders will not accept a buy-to-let application if the property is listed for sale.

It’s fine to keep the ‘for sale’ sign in place while you weigh up your options. However, you should ensure your application does not proceed until your property has been officially taken off the market.

Turner said: “If a property is discovered for sale post-valuation, you could stand to lose valuation fees if an application gets rejected as a result.”

He added: “Contact your estate agents. Check your property has no ‘for sale’ board outside and that it is no longer on the estate agents’ websites, or any property comparison sites they may have published the details on.”

Check the EPC rating

It’s exactly one year since new Minimum Energy Efficiency Standards became law in England and Wales. For landlords this means, unless exempted, they must ensure their rental property has a minimum Energy Performance Certificate (EPC) rating of E before a tenancy can commence.

A mortgage lender will get their valuer to look at the EPC rating and report back to them. If it’s anything less than an ‘E’ rating you will not be allowed to let the property, and this may affect your application.

Turner said: “Some lenders may simply decline your application, while others will insist on work being carried out to ensure the property is compliant and lettable.

“Planning ahead could save you time and could make the application process far smoother.”

Condition of the property

The property’s condition will be one of the factors mortgage lenders take into account when they decide whether or not you can afford the mortgage.

This is because the condition will affect the value of the property and therefore how much rent you can charge.

A property which is not habitable – in other words, does not have a functioning bathroom or kitchen – will simply not be eligible. If the valuer deems the property to be in poor condition, some lenders may want to you to carry out work before they accept a mortgage or remortgage application.

The better the condition, the more chance you have of being accepted.

Turner said: “If the property is ready to let, this is a positive sign for a lender. So it is worth assessing the condition of the property and carrying out any repairs or maintenance work prior to applying for a buy to let mortgage.”

He suggested a bridging loan for anyone who has bought a property with a view to making improvements.

“A bridging loan is a common alternative to get works done, at which point you can use a buy to let mortgage as your exit strategy from the loan.

“A broker giving good advice will arrange both products simultaneously, so you are not trapped into the terms of the bridging loan – these tend to carry a more expensive rate than a buy to let mortgage,” he said.

Location

According to Turner, mortgage lenders give consideration to the location of a property when assessing applications. They also look at the type of property and the tenant demand in the area in order to pinpoint accurately the prospective rental income, which is a key factor in assessing affordability of a candidate.

Turner said: “Make your decision carefully on the type of tenant you want, the type of property they typically rent and areas where these two factors overlap.

“It pays to do your research, before identifying the property you want to buy, to ensure that market forces ensure you can make the most of your rental income opportunity. In that way you can plan for success.”