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FOR THE USE OF MORTGAGE INTERMEDIARIES & OTHER PROFESSIONALS ONLY

FOR THE USE OF MORTGAGE INTERMEDIARIES & OTHER PROFESSIONALS ONLY

Affordability

In order to meet the self financing calculation for Buy to Let mortgages, the rental income is required to cover 125% of the mortgage interest for basic rate taxpayers (both applicants must be basic rate taxpayers), or 145% of the mortgage interest for higher or additional rate taxpayers. Where applicants are self-employed or day rate contractors the interest coverage ratio will be 145% irrespective of whether they are basic, higher, or additional rate taxpayers. The table below shows the stressed interest rates we apply for different application types:

Application Type Less than 5 year fixed products 5 year or more fixed products
Re-mortgages with no additional borrowing (excluding residential to BTL / Let to Buy) Higher of 4.5% or product rate +1% Higher of 4.5% or product rate +1%
All other application types (including residential to BTL / Let to Buy) Higher of 5.5% or product rate +2% Higher of 4.5% or product rate +1%

Where applicants are basic rate taxpayers, and the lending is not affordable on an interest coverage ratio of 145% at a stressed interest rate of 5.5%, we will look to evidence all taxable income keyed to the application in line with how we evidence income on mainstream applications - Income, Verification - Main Income | TSB Intermediaries Income, Verification - Other Income | TSB Intermediaries. Where any applicant is self-employed or a day rate contractor we will not look to evidence any income keyed.

When considering total income to establish the applicants tax banding we will include rental income for mortgaged Buy To Let properties (including property subject to mortgage application), and will make a deduction of 17.3% from the rental income keyed to the application to cover costs (e.g. £1000 gross rental equates to £827 after costs which will count towards total taxable income to establish tax banding). Whilst acknowledging costs will vary from property to property, we will apply the same deduction across the board in all instances.

Rental income from unencumbered properties is treated as self employed income, and therefore we will not look to evidence this and will apply an interest coverage ratio of 145% in this scenario. Rental income for the property subject to the mortgage application will be validated by the valuers estimate, and background mortgaged properties can be evidenced by any of the following:

  • 3 months bank statements (showing rental income).
  • Tenancy agreement (current agreement required, not to be out of date/expired).
  • Letter/invoice/statement from letting agent managing the property.
  • Letter from accountant or solicitor.
  • Letter from letting agent confirming expected rental payment (where not currently let).

For like for like remortgages the balance keyed must align to the current mortgage balance as per credit bureau.  If the requested loan is higher than that traced at the credit bureau we will either need additional documentation to confirm the current balance or the requested loan will need to be reduced to match the current balance as per credit bureau.

Should the rental income be insufficient to meet the self funding calculation then the loan amount must be reduced to fit. Personal income may not be utilised to meet any shortfall in rental income.

For Buy-to-Let applications the valuer will provide an expected market rental value figure.

The self-financing calculation must also cover the product fee if this is to be added to the loan.