Frequently Asked Property Investment Questions – Number of BTL Mortgages Affect on Credit Rating

Speaker 1: Paul, your last question. How does having a number of buy-to-let mortgages affect my credit rating or are they classed as a separate item from my credit profile?

Paul Mahoney: All right, good question, and it’s not a black-and-white answer in that it’s not completely separate, but it also doesn’t affect your credit rating the same as a residential mortgage or a personal loan would. So when you submit an application or even when you submit a dip, the lender will quite often request a copy of your credit report and that leaves what they call footprints. So another lender that you go to apply with can see that previous lender has done that. If you have many, many footprints, then it looks to lenders like you’re applying for many, many mortgages and they can start to ask questions about that.

However, even if you have a bad credit report, depending on what the reason for that is, that doesn’t necessarily affect your ability to get a buy-to-let mortgage, because they’re considered commercial mortgages and the serviceability for those mortgages are more about the rental income from the properties than they are about your own personal income and also your own ability to service those mortgages because it’s not coming from you. It is easier to get a buy-to-let mortgage than it is to get a residential one, for example.

Speaker 1: Okay, so if you have, for instance, you’re taking out a buy-to-let mortgage, you’ve got to consider the possibility of having a void. Is there a set percentage that the lenders tend to build into their calculations to allow for voids?

Paul Mahoney: There is, yeah. So all buy-to-let lenders need to use a benchmark rate of 5 1/2% now. So regardless of what they’re lending to you at, they use 5 1/2% unless it’s a five-year fixed product, then they can use the lending rate. But to answer your question, it has to be covered at 5 1/2%, 125% of the time. That’s a strange way of saying it, but it means that effectively they’re saying when you include things like costs and voids, et cetera, that that could account for about 25% of the rent. So yes, that’s the way they account for it.

Speaker 1: Okay. [Ayesha], any comments on that?

Ayesha: I’d say just be mindful that sometimes lenders will have a cap on the number of mortgages or buy-to-let mortgages that you can have. So you may be with one lender and you may have, say, 10 buy-to-let mortgages and you want to get an 11th and they’ll say, actually no, it’s not something we’re prepared to do, so you’ll have to go elsewhere. So I think in answer to the question, you can have multiple buy-to-let mortgages, but sometimes it will depend on who your lender is or who you speaking to.

Speaker 1: I suppose also occasionally you see, in these large developments, lenders will say, we’ve got enough exposure in this building. We’re not actually lending on any-

Speaker 4: Yeah, you see a lot of that.

Speaker 1: Yeah?

Paul Mahoney: Yeah, and lenders are also quite subjective, which is frustrating because they don’t have black and white rules, but they also don’t have anyone that really sets the rules or the decisions so you can’t necessarily, you know, it goes back to what we were talking about before. You can’t call up the bank manager and say, come on mate, lend me the money. It’s not like that, but they do make subjective calls, so you need to be aware of that as well. It’s not necessarily set in black and white.

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Frequently Asked Property Investment Questions – Number of BTL Mortgages Affect on Credit Rating
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