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How the BTL application process differs from residential

This article is part of
Guide to Buy-to-Let Mortgages

As for any mortgage, it’s extremely important that advisers have a good knowledge of each lender’s criteria, says Ray Boulger, senior technical manager at John Charcol.

This is because variations such as the lender’s rental cover requirement, maximum exposure to any single client and what types of property they won’t lend on will avoid wasting the adviser’s and lenders’ time.

The lender will require the normal personal information as per a residential mortgage and the usual anti-money laundering checks will be made.

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Greg Went, senior product manager at Nationwide, adds that “lenders will need to understand a number of aspects concerning the applicant, property and loan requirements, as this will enable them to make an informed lending decision against their respective criteria and affordability assessment.”

He says that rental income is perhaps the main consideration when it comes to an investment property mortgage.

“Most lenders, including [ourselves], insist on a minimum rental income requirement of 125 per cent of the monthly mortgage payment.

“Lenders will also look for a strong credit report from the applicant, and will often only lend to landlords who are also homeowners with a history of keeping up-to-date with their mortgage payments.

“Some providers will even require borrowers to have a minimum personal income of at least £25,000.”

In addition, most providers will insist that the tenancy is conducted under an ‘assured shorthold tenancy’ agreement to fix the rent for a certain period, which is usually for six to 12 months.

To try and ensure clients get a decision quickly from the lender, Mr Boulger advises that having a comprehensive understanding of different lenders’ criteria should mean you avoid submitting a decision in principle (DIP) or application to a lender when the case will never fit.

“Some lenders, including BM Solutions and The Mortgage Works, offer a very good DIP system, which provides a rapid and reliable decision.”

Mr Went agrees that obtaining a decision in principle will speed up the process and add that most lenders display quick and easy online calculators which show how much they may be prepared to lend.

“[The DIP] is a non-binding decision provided by a lender but it provides a good indication that they will accept a full application for a mortgage should you wish to proceed, subject to satisfactory property valuation and the case meeting the lender’s criteria.”