Buy to Let Mortgages - Rental Yield
Most lenders undertake an assessment based on the rental income to calculate the maximum loan size that they are willing to lend but some still insist on a minimum provable earned income. Lenders are ideally looking for 115-130% coverage of the monthly payment (on an interest only basis) in rental income at the either the charge rate (usually if the scheme offered is a fixed rate) or the underlying rate charged. In simple terms, this would work as follows:
| Property Value | = | £135,000 |
| Deposit(15%) | = | £20,250 |
| Required Mortage | = | £114,750 |
Mortgage Product: 3 year fixed rate 4.79% and lender requires 125% interest cover
£114,750 X 4.79% X 125% = minimum annual rental income required
In this example, annual rental income of at least £6871 or £573 per calendar month would be needed to ensure that only 15% deposit (£20,250) is required
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