Residential Investment

When investing in residential properties, lenders typically require rental income to cover 100-125% of the loan payments at a 5.5% interest rate. To calculate the maximum loan amount, divide the annual rental income by 5.5% and then divide the result by 1.00 or 1.25, depending on the lender’s requirement.

For example, with an annual rental income of £22,000 and a 125% cover requirement, the maximum loan would be: (£22,000 / 5.5%) / 1.25 = £320,000

Some lenders may adjust the rental income to account for potential vacancies and maintenance costs.

Investing Through a Limited Company (SPV)

There’s a common misconception that a limited company (SPV) must be trading for a specific period before securing a mortgage. In reality, you can obtain a mortgage before setting up the company. However, a certificate of incorporation will be required to complete the mortgage process.

Lenders primarily assess the director’s financial profile, including income, credit history, investment experience, and employment status. Some lenders may require a personal guarantee from the director, making them personally liable for any shortfall.

Commercial Investment

Similar to residential investment, lenders typically require commercial rental income to cover 100-150% of the loan payments.

In addition to the factors considered for residential investment, lenders will also assess the lease terms, including rental rates, remaining lease term, and break clauses. The quality and financial stability of the tenant are also crucial factors.

HMO Investment (Houses of Multiple Occupancy)

Lenders will assess your experience in the HMO sector. Due to the higher costs associated with refurbishments and maintenance, lenders may apply a more conservative approach to rental income calculations.