What to do with a Buy to Let application that won't meet typical ICRs?

Have you ever wondered what to do with a Buy to Let application which won’t meet typical Interest Coverage Ratios?  It’s a fairly common theme, particularly when the landlord has held the property for some time meaning that it was purchased before ICR requirements were as they are today

One of our brokers recently called us about his client Miss Peters.  She’s a regular client of his and had asked him to arrange a remortgage of one of her existing BTL properties.  The broker was struggling to find a lender as it had been bought before ICR requirements were at today’s levels, as well as the fact that it is a relatively expensive property in an area where rental values are low.  This of course meant that the property’s yield was very low and a number of lenders had already declined to offer

Miss Peters is a higher rate taxpayer and the property is held in her personal name. The higher value made moving it into a limited company unattractive, and so most lenders needed to use higher ICRs. Her broker had tried to source a mortgage through various lenders, but it had failed all their ICR requirements. He then approached us with his problem, and we explained that we don’t assess BTL’s with an ICR calculation but instead consider the applicant’s overall financial situation. To do this we assess their earned income together with their mortgage commitments and other credit commitments, and we use an affordability model.

We reviewed her overall financial position, which included a relatively modest residential mortgage and a sensible background BTL portfolio and were quite easily able to make it fit on our affordability model.  This was achieved by using her earned income together with 50% of the subject property rental income. We could see that she had a stable long-term tenant, and that the overall proposition offered good quality low risk lending.

Miss Peters got her mortgage, the broker got a happy client, and we got the satisfaction of having helped both.   By taking a look at the bigger picture, there is often a way to work the most difficult of cases through to get the best outcome for all parties.  We would like to also help you, next time you get a client like Miss Peters.

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If you’d like to talk to us about any enquiries which you may have, give our Broker team a call on 0800 988 1561. 

This case study is based on a real case but the names and some details have been changed and stock images have been used to protect confidentiality.

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