Mr Affordability says: What happens when your client has property in the background?

Buy-to-let property in the background

In terms of affordability, buy-to-let properties in the background often used to get in the way. However nowadays, they are usually ignored, as long as they ‘wash their face’. Several lenders can even add any excess rental income into the equation, often enhancing affordability income.

Take a straightforward case, with one buy-to-let in the background, which the client has owned for several years and receives an excess rental income of approximately £700 per month. The maximum loan available for this case is boosted by nearly 20% over the same client, with no buy-to-let property.

The range of results regarding how much lenders will advance increases when there are buy-to-let properties in the background different lenders appear at the top of the affordability results. HSBC is particularly strong for this sort of case.

Residential property in the background

What impact does a background residential mortgage have on affordability for a second mortgage?

Lenders fall into two camps on this issue. The first look group will look at the affordability of the new mortgage in isolation and treat the payments on the first mortgage as committed expenditure. The others assess the overall affordability of the existing and new mortgage. This can create large differentials between the top and bottom lenders.

We reviewed a real-life case for a couple with a joint income of £77,000 and an existing residential mortgage of £205,000 with monthly repayments of £711. The range of affordability for a second home mortgage was from £69,960 to £346,322! In this situation only seven lenders met their required loan amount.

So, when your client does have property in the background, don’t take it for granted that you will not the best options to meet their affordability requirements. This is one of the many areas, when differences in individual lender calculators can lead to a very big range of results.