Buy to Lets and long term fixeds!

Most second properties that are rented out as Buy to Lets will be valued on their bricks and mortar worth, but more importantly on the rental income achievable.  In nearly all cases, the lenders will calculate the mortgage loan amounts based on the rental income achievable and confirmed by their valuer.  This rental figure will need to be over and above the monthly mortgage payment.  A normal calculation suggests that the rental must be 125% of the mortgage payment, based on an average interest rate of 5%.  Any less and the lender will reduce the mortgage loan according to the reduced rental income.  For example, if you wanted to borrow £100k, a reasonable test would be to multiply this by 5% (a fairly average calculation) and divide by 12 to get the monthly cost. This needs to be multiplied by 125% to determine the required monthly rental!  In this example, £521 per month will need to be confirmed as reasonable by the valuer in order to achieve the full £100k loan from the lender.  Please note that this is an example only and that varying lenders will have alternative calculations.   Also, that in most cases the actual rate paid to the lender will be less than the rental stress test calculation mentioned above.