Complex Buy-to-Let mortgage FAQs

Complex Buy-to-Let mortgages are typically more flexible than Buy-to-Let mortgages which are available from High Street lenders. They are ideal when a borrower has had their application denied or their situation simply doesn’t meet the High Street lender criteria. Landlords can access complex Buy-to-Let mortgages through intermediaries who can help them simplify the process.

Individuals and limited companies can apply.

Depending on lenders, this can extend to borrowers who are first-time landlords, self-employed, have impaired credit and expat or foreign nationals.

Different lenders will have their own eligibility checks. They will typically check the borrowers:

• Ability to pay the deposit and source of funds
• Income (2 year’s SA302) credit and assets
• Last 3 months’ personal and /or business bank statements as appropriate to verify rental income on remortgage cases
• Proof of ID (certified copy of passport or driving licence)
• Proof of residency (utility bill or bank statement)
• Lease copy (AST or commercial lease)

A mortgage on a residential property that the borrower intends to rent out, is a Buy-to-Let mortgage. If the client circumstances are a little bit more complex or the property has features that put off traditional lenders, brokers may recommend a complex Buy-to-Let mortgage.

If the borrower will be using the property to operate their business or letting it out for commercial use, this will require a commercial mortgage.

Although this will vary between lenders, here are a range of properties that can often be financed with complex Buy-to-Let mortgages:

• Serviced accommodation and student residences
• Houses in multiple occupation (HMO)
• Freehold properties split into several flats
• Flats near to or above commercial premises such as shops, including fast food and takeaways
• Ex local authority flats
• Holiday let
• Airbnb

Rates typically begin from 2.89%. This will vary between lenders provisional to the loan amount and the length of term.

The overall amount that can be borrowed is entirely based on the achievable rental income.

All lenders use a ‘stress test’ to assess the suitability of the borrower for a BTL mortgage.The stress test considers the rental income and the ability to pay the interest on the mortgage, or the Interest Cover Ratio (ICR).

As an example, a mortgage of £400,000 with a 5.5% ICR applied will result in monthly interest payments on the BTL mortgage of £1833.33 (£400,000 x 5.5% = £22000 / 12 months = £1,833.33). With the rental income of 125%, the actual monthly cost would be £2,291.66 – and this, is the lender’s expected rental value PCM.

For higher tax rate payers, the stress testing increases from 125% to 145%. The stress test applies to the total loan amount, not the property price.

With the complex BTL market, there is flexibility available in the ICR required. Standard calculations start at 125% at 5% for lower rate taxpayers and 140% at 5% for higher rate taxpayers. This means clients can access greater loan amounts than through the traditional high street lenders as standard. As with traditional lenders, borrowers can access lower stress rates when applying for longer fixed rate products over a 5 year or longer term. In the specialist market this starts from 3.60% giving much greater lending capacity.

Typical repayment terms are 5 – 30 years.

Some lenders may consider up to 80% loan-to-value (LTV) for a residential complex BTL and 75% LTV for a commercial complex BTL mortgage, however 75% LTV is more typical, so you should be prepared to have at least a 25% deposit available. Of course, this all subject to the lender’s criteria, and the higher the LTV the higher your interest rates.

This will vary case-by-case, and also between brokers and lenders. Here at Enterprise Finance from the initial enquiry to completion, our average turnaround time for a complex BTL is 6 to 8 weeks from initial enquiry.

• Client gets in touch with their broker seeking options to raise funds for a Buy-to-Let property.
• Having conducted a fact-find process, the broker assesses whether a High Street Buy-to-Let mortgage will meet their needs or if they will need to refer the client’s case to a specialist lender, via a Specialist Finance Distributor (SFD)
• If the broker decides to refer their client to a SFD, they will let their client know they are being referred and to expect a call from them directly.
• The SFD underwriter then calls the client and assesses if the client’s circumstances will be suitable for a complex BTL mortgage. If they are, the underwriter then prepares indicative terms which they send to the client to review.
• If the client confirms they are pleased go ahead with the full process, they are sent all relevant paperwork and a list of underwriting requirements; they can then complete the required paperwork, pay any upfront fees required, gather the required documentation and send back to the SFD.
• The underwriter pre-underwrites the deal, ensuring it’s complete for the lender. They then send the application to the lender to get a formal approval in principle
• The lender issues the Agreement in Principle (AIP) to the client through the SFD and requests any further supporting documents.
• Once the client returns the required documents to the SFD, the underwriter will re-evaluate the case and instruct a valuation.
• Once the valuation is received, the SFD packages the case and submits it to the lender.
• The lender does a final underwrite of the loan and approve it. They then issue a formal offer, with additional documentation to sign including; the offer itself, legal charge permission and proof of buildings insurance.
• The client signs and returns the final documents to the SFD who forwards over to the lender who instructs the solicitors when received.
• Once all legalities have been finalised the funds are released to the borrower

These fees will vary across the market.

• Broker fee – This varies between brokers. Some brokers do not charge a fee and rely on receiving commission from lenders when the loan completes. Other brokers may charge a fixed fee, or a percentage of the total loan value.
• Application fee – Some lenders and brokers charge for submitting an application
• Valuation fee – To calculate an unbiased, accurate value of the security, lenders will typically instruct an independent valuation. This can also include a projected valuation of the project once completed.
• Arrangement fee – Often calculated as percentage of the total cost of the loan
• Legal fees – If needed, borrowers will have to pay for legal costs such as hiring a solicitor or qualified legal advice
• Exit fee – Often calculated as a percentage of the total cost of the loan. There are some commercial mortgages that do not have exit charges.
• Administration fees - Any additional costs charged by either lender or broker