Lender Must Consider Income even in Buy-to-Let

Lenders have been warned that easing income requirements for buy-to-let applicants could backfire.

Income requirements are still a key part of the buy-to-let application and shouldn’t be overlooked as market sentiment improves, said David Whittaker, managing director of Mortgages for Business.

This followed the recent call by Tony Salentino, director at Complete FS, for “a wholesale change of heart” in how lenders approach applicants and decide eligibility for loans.

He called for buy-to-let lenders to review their minimum income requirements and consider switching to affordability based on rental income as a safer alternative.

But Whittaker said lenders need to learn from the recession and that still means carefully assessing each individual application.

“The propensity to produce rent is part of a lenders’ underwriting decision. Yet the second and equally important component is understanding the outside income and obligations of the borrower.

“To suggest that lenders should ignore the second part is not only foolhardy but sowing the seeds of disaster when interest rates rise as they inevitably will in the years ahead.”

Salentino hit back by saying that many applicants are able to provide funds that offer a sufficient level of cover.

“With all lenders applying a stress rate of typically 5% and 125% rental coverage, this does allow for rate increases.

“And in most cases the applicants will have plenty of excess income to put money aside for void periods.”

He said that HMOs and student lets that offer higher yields than other property types should take precedence, as they provide better guarantees to those lending.

Salentino said: “Financial advisers do a great job of advising applicants of the potential downsides of investing in properties and once again I feel that we should respect the professionalism and accuracy of the help they give to these clients.”

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