The Impact of Rental Income on Your Buy-to-Let Remortgage Options

As a landlord, your rental income is the lifeblood of your buy-to-let investment. But did you know that it also plays a crucial role in determining your remortgage options? Whether you're looking to secure a better rate, release equity, or expand your property portfolio, understanding how lenders assess your rental income is key to unlocking the best deals. In this blog post, we'll dive into the intricacies of how rental income influences your remortgage terms and what you can do to optimise your financial position.
Why Rental Income Matters in Remortgaging
When you apply for a buy-to-let remortgage, lenders don’t just look at your personal income—they focus heavily on the rental income your property generates. This is because, unlike a residential mortgage, the affordability of a buy-to-let mortgage is primarily assessed on the rental income rather than your personal earnings.
Lenders use a measure called the Interest Coverage Ratio (ICR) to determine if your rental income is sufficient to cover the mortgage payments. Typically, they require your rental income to be at least 125% to 145% of your mortgage repayments at a notional interest rate (usually higher than the actual rate) to account for potential future interest rate rises.
How Lenders Calculate Rental Income for Remortgaging
The exact calculation of rental income for remortgaging purposes can vary between lenders, but generally, they follow a similar process:

1. Current Rent: Lenders will look at your current rental income, which is usually verified through your tenancy agreement. If you’ve recently increased the rent, you’ll need to provide evidence of this.
2. Market Rent: Lenders may also assess the market rent for similar properties in the area. If your property is under-rented compared to the market rate, this could limit your remortgage options.
3. Stress Testing: Lenders apply a "stress test" to ensure that your rental income could still cover the mortgage payments if interest rates were to rise significantly. This is where the notional interest rate comes into play.

The Role of Portfolio Stress Testing for Portfolio Landlords
If you’re a portfolio landlord—someone who owns four or more buy-to-let properties—lenders may not only stress test the individual property you’re remortgaging but also assess the overall health of your entire portfolio. This is because, from a lender’s perspective, the performance of your portfolio as a whole can significantly impact your ability to meet mortgage payments.

1. Portfolio Stress Testing: During the remortgaging process, lenders may conduct a stress test across all your properties to ensure that, collectively, they generate enough rental income to cover the mortgage repayments, even in scenarios where interest rates rise. They will look at your portfolio’s overall loan-to-value (LTV) ratio, rental yields, and whether the income generated meets the required ICR across the board.
2. Impact on Your Remortgage Application: If your portfolio is heavily leveraged or if some properties are underperforming in terms of rental income, it could affect your ability to remortgage a specific property. Lenders might require you to adjust your portfolio, such as by selling off underperforming properties, to bring the overall risk level down.
3. Strategies for Portfolio Landlords: To improve your chances of a successful remortgage application, consider conducting your own stress test on your portfolio before approaching lenders. Evaluate the performance of each property and address any weak points, such as raising rents where possible, refinancing high-LTV properties, or even selling properties that are not contributing positively to your income.

Strategies to Maximise Your Remortgage Options

1. Increase Your Rental Income: If your current rental income is below market rates, consider raising the rent to improve your remortgage prospects. However, be mindful of tenant relationships and local market conditions.
2. Optimise Your Property’s Appeal: Simple upgrades or renovations can increase your property’s rental value, making it more attractive to lenders. This could include modernising the kitchen, improving energy efficiency, or adding amenities.
3. Portfolio Management: If you own multiple buy-to-let properties, consider how each property's rental income contributes to your overall remortgage options. A well-managed portfolio with strong rental yields can give you more leverage when negotiating with lenders.
4. Consider a Specialist Lender: Some lenders specialise in buy-to-let mortgages and may offer more favourable terms based on rental income. These lenders might also be more flexible with stress test requirements, especially if you have a strong rental history.

Potential Pitfalls to Avoid

• Over-Optimistic Rental Projections: Be realistic about your rental income potential. Overestimating your rental income to secure a remortgage can backfire if you struggle to meet the payments later on.
• Ignoring Additional Costs: Remember that lenders will also consider other costs associated with owning a buy-to-let property, such as maintenance, management fees, and void periods. Ensure your rental income comfortably covers these expenses as well.
• Lack of Documentation: Ensure you have all necessary documents in order, including tenancy agreements, proof of rental income, and records of any rent increases. Lenders require clear evidence to make an informed decision.

Final Thoughts: Is Your Rental Income Working for You?
Your rental income is more than just a revenue stream—it’s a powerful tool that can enhance your remortgage options and financial flexibility. By understanding how lenders assess rental income and taking steps to optimise it, you can unlock better remortgage deals that align with your long-term investment goals.

Are you considering a buy-to-let remortgage and want to ensure your rental income is working in your favour? Contact us today using the form on our website for expert, fee-free advice tailored to your unique situation. Let us help you find the best remortgage deal to maximise your property’s potential.

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Below is a list of areas covered:
​Mortgage Broker Birmingham
Mortgage Broker Wolverhampton
Mortgage Broker Sedgley
Mortgage Broker Dudley
Mortgage Broker Walsall
Mortgage Broker Bilston
Mortgage Broker Tipton
Mortgage Broker Sandwell
Mortgage Broker Brierley Hill
Mortgage Broker West Bromwich