Rental Income Mortgages

Can I get a mortgage if my rental income is lower than the monthly mortgage cost?

Sadly, probably not. Most lenders work on net profit or affordability models. And if you’re making a loss, particularly if that is a paper loss and there is no tax being paid, the lender would not necessarily view that as income.

There are specific scenarios where a lender might consider it if there have been exceptional costs from refurbishments and things like that. But largely, if you’re not showing a profit and therefore you’re not paying tax, it’s very difficult to use that income for a mortgage. Lenders are looking for tax being paid on income. There are exceptions, of course, as always.

What proof of income or documents will I need for a mortgage using rental income?

HMRC have been leaning on lenders in recent years. You have to pay your tax to get a mortgage – that’s the way it works now. So the logical place to start is your tax return.

As I mentioned before, the SA302 is a good place to start. You might be running this as a business – and more and more people are becoming professional landlords, putting their properties through companies. In that instance, we’ve got your accounts as proof.

We probably want bank statements as well because obviously you’ve got other costs to take into account. Banks will probably want one, some or all of those documents.

As we always say, just sit down with us first, and we’ll see what you’ve got to work with. That will drive our research to find the most appropriate lender for you

Can I get a mortgage using rental income for a Buy to Let?

Yes, you can. That’s basically how Buy to Let works. In theory, the rental income you achieve should be sufficient to cover the mortgage and more.

There are occasions when a lender would be looking at you as an individual, in terms of the income you receive in the background: employed, self-employed, contracting, etc.
But when lenders are assessing whether you can have a Buy to Let mortgage and how much you can borrow, the rent is going to play a really key part.

We do have pages on our website with guides around this. Rental stress tests through lenders are also very important. That in itself can be a complicated space, because different lenders have different attitudes. Even with the same lender, you sometimes find that depending on the product you applied for, you can borrow more or less.

That’s where the advice part really comes in. Have a conversation with an advisor around the level of rent that you’re expecting to achieve, how much you’d like to borrow and whether that is achievable based on lender calculators.

How much mortgage interest tax is payable against revenue from rent?

Speak to an accountant, not a mortgage advisor, if you want to figure out anything to do with tax. I can state things as they sit today in November 2024, where if you own a property in your personal name, you effectively can’t offset the interest costs from your mortgage.

There are some other nominal costs you can offset. Your accountant can talk you through it, but it’s why more people are buying through limited companies. Then, the usual rules apply, in that you can offset the interest and other charges as well.

It very much depends if the property is owned in your personal name or through a company – but always get tax advice for an accurate answer.

Can I get a mortgage using rental income if I have bad credit?

Yes, you can. One thing to note is that there is a strong correlation in the mortgage world between lenders that offer Buy to Let products, which is effectively what we’re talking about here, and lenders who are regarded as specialists.

In the specialist lender space, there is often more appetite for historic credit challenges. It’s good to get advice. The starting point should always be your credit file – because ultimately that’s what your mortgage advisor will ask you for and a lender will be interested in.

There are lots of free options available online. Get that in hand – you don’t necessarily need to have all the technical understanding, but putting that in front of your mortgage advisor will be really helpful for them. From there it’s just a case of looking for lenders that would be happy with that adverse credit and rental income. You might pay a slightly higher rate.

Ideally, you want anything major, like missed payments for large amounts, CCJs, et cetera, to be over six years old to rule in most lenders. But if you’ve got a clear credit file for two or three years, the majority of lenders will be happy to have a conversation. There’s hope and there are options, so please do get in touch.

How do I apply for a mortgage with rental income? What is the process?

The right thing to do is speak to a broker because this is a more complex area. I’ve touched on the documents you need, which will drive the lender we talk to. That assessment and the application process itself is very fundamental in this area.

We always like to sit down with you and ask what you want to achieve. We then work backwards to find the right lender, not the other way round. Where things go wrong is trying to shoehorn something in with the wrong lender.

For example, you could pop down to your local bank branch and ask for a mortgage. They may simply not offer a mortgage in this area. Or, it may not be generous enough. They may not be ideally priced.

That’s why it’s right to speak to a broker who will find you the right outcome. That’s literally through how it works. But the application process itself is the same. We need your ID, credit file, bank statements and proof of income. From that point on, we do all the hard work.

You’re busy doing what you’re doing, and we can do all the donkey work and make sure the actual application process itself runs smoothly. We’ll just keep you posted with updates.

What else do we need to know about mortgages with rental income?

One thing is that sometimes brokers can get exclusive products. It’s not always the case, but sometimes there are products based on rental income that you can only access through certain brokers.

There are lenders with separate brands, away from the mainstream applications. On occasion, those brands are only accessible through a broker. If you’re only dealing with the internet or with a specific lender, you might be missing something that’s potentially more appropriate for you at that point in time.

Therefore, getting advice from a broker who has access to a range of different providers, some of which will only deal with the broker community, will give you a bigger menu to choose from. So go and have the conversation.

The initial chat is normally free – so there’s no downside to understanding what your options are by talking to a broker.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.

THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.