Buy-to-Let case study: Miss Peters
Aside from the obvious benefits, Buy-to-Let properties can act as a financial cushion and provide landlords with some real security and stability.
However, even with this cushion, some property owners still struggle to secure mortgage and remortgage deals with their lenders, due to barriers created by Interest Coverage Ratios (ICRs) - this is a calculation some lenders use to assess how easily a business (or landlord) could pay off the current interest.
Buying before interest coverage ratios
Miss Peters was looking to remortgage one of her existing Buy-to-Let properties, which was home to a stable and long-term tenant. This was a relatively expensive property in a residential area where rental values are low, and as a result, the rental yield was also very low. The higher value of Miss Peters’ property also meant that moving it into a limited company status would also be an unattractive move.
Miss Peters found herself being rejected by many lenders for one particular reason, the property had been with Miss Peters quite some time and was purchased before Interest Coverage Ratios (ICR) were at the standard they are today. For this reason, Miss Peters failed all of their ICR requirements. This particular situation becomes a common barrier for many landlords when a property has been held in their portfolio for quite some time.
"Some property owners struggle to secure mortgage and remortgage deals with their lenders, due to barriers created by Interest Coverage Ratios."
Working flexibly to help our customers
Here at Furness Building Society, we do things differently. We don’t assess buy to let homes with an ICR calculation but instead consider an applicant’s overall financial situation - this will usually include any earned income together with a mortgage and other credit commitments.
Miss Peters had a relatively modest residential mortgage herself and a sensible Buy-to-Let portfolio, so by considering her earned income with 50% of the subject property rental income, her overall proposition offered good quality and low-risk lending for us - and a sound remortgage deal