The amount a property investor can raise on a buy to let mortgage is determined by the value of the property and the potential rental income.
Up until now the main limiting factor has been value, however this now changes! As rental income becomes increasingly important, property investors will find the amount they can raise on a buy to let mortgage being restricted!
With the new tax legislation regarding buy to let properties starting to roll in from April 2017, together with increased mortgage regulation that will effectively reduce the amount many property investors will be able to raise on a buy to let mortgage, we have created a simple to use ‘buy to let maximum loan amount calculator’.
Our calculator works out the maximum amount that can be raised on a buy to let mortgage based on the loan to value of a property.
It also works out the maximum amount that can be raised based on the rental income, the interest rate of the mortgage and the Interest Coverage Ratio (ICR).
The lower figure from these two calculations will be the maximum amount that can be borrowed.
Until now the Interest Coverage Ratio has typically been 120% or 125%, but due to new regulation from Prudential Regulatory Authority (PRA), this will now likely range between 125% and 175%.
Step 1. Enter the purchase price or approximate value of the property
Step 2. Enter the loan to value (LTV) required. This is set to 75% by default, but please change this to your own personal requirement or the maximum LTV for the mortgage plan that you are considering.
Step 3. Enter the rental income for the property. Remember when applying for a buy to let mortgage the property being used as security will be surveyed to determine its open market value and also its rental potential. Most lenders will use the rental figure provided by the surveyor.
Step 4. Enter the ICR (Income Coverage Ratio) – This is the affordability amount the lender will be using for your chosen loan plan. This figure typically ranges from 125% to 175%.
Step 5. Enter the interest rate for your chosen mortgage facility. If you are opting for a 5 year fixed rate, then you can use that rate for calculation purposes. If you are opting for a shorter term fixed rate, below 4.9%, you will need to select 4.9%.
The calculator will display:
The maximum loan amount based on your chosen loan to value.
The maximum loan amount available based on the rental income, the interest rate of the mortgage facility and the ICR.
The ‘Maximum Loan Available’ is displayed. This is the lower amount of the LTV and ICR figures.
If you need to raise more and LTV is the limiting factor, then please look to see if buy to let mortgage plans that offer a higher LTV are available.
With the new rules it is going to become more likely that affordability is the limiting factor.
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Last updated: 19 January 2017