Buy-to-let policy

General policy | Buy-to-Let policy | Income | Property | Special lending situations

 

Index

•  Overview
•  Income requirements
•  Calculating affordability for a buy-to-let application
•  Policy requirements for a buy-to-let application
•  Property requirements
•  Tenancy requirements
•  Verification of rent from the buy-to-let property
•  Maximum Loan to Value for buy-to-let applications
•  Main residence applications where the customer has a buy to let mortgage with the Lloyds Banking Group (excluding HBoS) or with another lender 
•  Capital raising 

Overview

For ALL applications where the customer’s mortgage commitments include any element of buy-to-let properties, including main residence applications with buy-to-lets in the background, please complete and send us the

Additional Mortgages form alongside the application in C&G Caseflow or Mortgage Application Form. 

 

Definition	Where the property is to be let with a formal tenancy agreement.
Products	Buy-to-Let products only
Fees	Buy-to-Let valuation and product fees apply

 

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Income Requirements

For all buy-to-let applications the customer must have a minimum income before tax (excluding rental income) of:

 

• £35,000 (sole or joint) – for loans of £500k or less
• £50,000 (sole or joint) – for loans of more than £500k.

Self-employed income

 

For self employed customers, the minimum income will be based on the average of the last two years’ income.

 

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Calculating affordability for a buy-to-let application

Affordability for a buy-to-let application is calculated by either:

 

1. using the customer’s income plus 50% of the expected rental income from the buy-to-let property or
2. calculating that the expected rental income will cover the monthly mortgage payments (using the appropriate rate – see self-funding calculations) making the property self-funding.

Self-funding calculations

 

• If the Loan to Value (LTV) of the buy-to-let property is less than or equal to 60%, the expected rent from the property must cover the mortgage payments using a notional 7.5% interest rate.
• If the LTV of the buy-to-let property is greater than 60%, the expected rent from the property must cover the mortgage payments using a notional 8% interest rate.

 

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Policy requirements for a buy-to-let application

• Customers must not have a combined total of more than nine buy-to-let properties (including second homes) mortgaged to lenders within the retail division of Lloyds Banking Group* subject to a maximum buy-to-let lending portfolio of £3 million within the retail division of Lloyds Banking Group*.
• For all buy-to-let applications, the Additional Mortgages Form must be completed and faxed to your regional processing team when you submit the application. Please ensure you include the case reference number and client's name in the fax cover sheet.
• This form must be completed where the customer’s mortgage commitments include any element of second home or buy-to-let properties. This includes main residence applications with buy-to-lets/second homes in the background.
• If the customer's main residence is mortgaged to the Lloyds Banking Group (excluding HBoS) this is not considered as part of the limit of nine buy-to-let properties with the Group. However, the customer’s maximum exposure on all mortgages with the Lloyds Banking Group (excluding HBOS), residential and buy-to-let, must not exceed £5 million.
• If the customer has four or more properties mortgaged to lenders in the Lloyds Banking Group (excluding HBoS), the application will be referred to underwriters.
• Applications from customers who have Lloyds Banking Group (excluding HBoS) mortgage commitments of more than £500,000, where an element of those mortgage commitments is or will be made up of buy-to-let mortgages, must be referred to underwriters.

 - Example – A customer with a £450,000 Lloyds Banking Group (excluding HBoS) residential mortgage and is applying for a £100,000 buy-to-let mortgage will need underwriter approval.

 

• First-time buyer, applicants below the age of 25 years, guarantor applications or builders’ incentive schemes, eg builders’ deposits are not eligible for buy-to-let applications.
• Existing residential customers who submit a lettings request within six months of the original loan must convert to a buy-to-let product. Any Early Repayment Charge applicable to their original mortgage must be paid in full.
• Lending will not be agreed on properties where there is more than one tenancy agreement or where there would be an informal tenancy e.g. student lets.

* This includes the following brands: Birmingham Midshires, Halifax, Bank of Scotland, Intelligent Finance, Lloyds TSB (including C&G mortgages), Lloyds TSB Scotland, The Mortgage Business (TMB) and Scottish Widows Bank.

 

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Buy-to-Let property requirements

• The property must not be split into separate units of accommodation (e.g. a house converted into two flats).
• The property should be of good quality, in sound structural condition, in a reasonable state of repair and be wholly used for residential purposes. There is no minimum property value but consider carefully the value of the property and apply any local knowledge available to ensure it reflects that of a good-quality property in its location.
• All standard construction policy requirements must be met.

Valuers will use the following standard phrase in their valuation report for buy-to-let properties:

 

• 'The estimated rental value is based on the present condition of the property'

The ‘present condition’ figure must be sufficient for us to lend and therefore, there must be:

 

• no major works required (these are defined as dry rot, drainage defects or ongoing structural movement)
• no repairs needed that the Valuer considers essential for mortgage purposes
• no repairs or modernisation required where the Valuer estimates the cost to be more than £5,000.

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Buy-to-Let tenancy requirements

 

• A maximum of four tenants is acceptable, provided there is a single assured shorthold tenancy.
• Type of let must be either:

- an assured shorthold tenancy (in Scotland, a short assured tenancy) for not more than one year or

- tenancy in favour of a limited company, local authority or housing association for a term not exceeding one year.

 

The solicitor must ensure the let meets the lender’s requirements.

 

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Verification of rent from the buy-to-let property

Property to be let

For a house purchase, potential rental income must be confirmed by a letting agent/accountant/solicitor.

 

Property already let

Where the property is already let and a remortgage is taking place, proof of rental income can be established via bank statements or confirmation from a letting agent/accountant/solicitor.

 

Other requirements

If the LTV is greater than 70% on a Homeowner Loan application, a valuation will be required to confirm the rental income.

 

Where rental income has been entered and the LTV is more than 70%, the rental income must be validated by the valuation and the lower figure used.

 

Self-employed applicants who hold a property portfolio can include their share of the net profit (rents received less expenses) as part of their self-employed income.

 

Valuers in Scotland may provide the rental income figure on their valuation report. If provided this can be used as confirmation.

 

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Maximum Loan to Value for buy-to-let applications

Channel	Score	Loan Type	Maximum LTV
All	All	Buy to lets	75%
All	All	Buy to lets (new-build properties*)	65%

 

* This is defined as any property that was first occupied less than six months ago.

 

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Main residence applications where the customer has a buy-to-let mortgage with the Lloyds Banking Group (excluding HBoS) or with another lender

Main residence application and the customer has buy-to-lets with another lender

 

For C&G Buy-to-Let Mortgages, the risk will be accepted that buy-to-lets with another lender do not affect the main residence application if:

 

• Lloyds Banking Group (excluding HBoS) mortgage commitments are £500,000 or less
• none of the mortgages are currently in arrears
• the customer’s total mortgage commitments are less than £2 million.

Note: These applications will normally trigger an affordability decline on C&G Caseflow – the case can be appealed for referral to underwriters using C&G Caseflow, please ensure supporting financial information is provided.

 

How to enter main residence applications with self-funding buy-to-let properties in the background on C&G Caseflow

 

For main residence applications where buy-to-lets are with the Lloyds Banking Group (excluding HBoS)

 

• calculate that the customer’s mortgage commitments – based on the total portfolio of exposure/properties with the Lloyds Banking Group (excluding HBoS) – is self-funding using a notional interest rate of 8%
• complete the Buy-to-Let Mortgages form showing these calculations
• submit the application on C&G Caseflow, and fax the Buy-to-Let Mortgages form to your regional processing team, ensuring that the case reference and name are included on the fax cover sheet.

Where an element of those mortgage commitments is or will be made up of buy-to-let mortgages, these applications will be referred to underwriters. In these instances, when a customer applies for residential borrowing, underwriters will calculate the affordability of any buy-to-let property using a notional 8% interest rate.

 

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Capital raising on a buy-to-let property

If an applicant wants to remortgage a buy-to-let property and raise additional funds, or applies for a Homeowner Loan on a buy-to-let, it is important that you obtain the amount and the purpose for the additional fund.

 

Amount	Purpose of Additional Borrowing/Homeowner Loan	Can we lend?
< £25,000	·      Home improvements to this property   ·      Extending or enlarging the property*   ·      Buying land to build a house on   ·      Raising money to purchase another property	Yes
< £25,000	Any other purpose	No
> £25,000	Any purpose	Yes

 

*The original loan amount must have been for the purpose of purchasing the land/property on the land that is being extended/enlarged, and the loan must be secured against the land in question.

 

These rules apply to all applications where the property is let, including situations where the customer is living in tied accommodation or abroad.

 

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