Getting a Mortgage Based on Rental Income

Using income from an existing investment property to help with other property purchases can be extremely useful. However, it does add a layer of financial complexity and possible tax implications. Here we’ll cover whether you can use rental income to get a mortgage and tips to stretch your affordability.

Can you get a mortgage based on rental income?

Yes, it's possible. When you’re applying for a mortgage, some lenders will factor in part or all of the rental income you receive. However, you’ll likely find you have a smaller number of lending options if you want to get a residential mortgage using rental income as your main source of funds.

Typically, it’s useful to combine the rental income with any other money you make through wages, interest, investments or any other type of income. Using multiple sources of income can help bolster your application and stretch how much lenders will let you borrow.

How much can you borrow?

Usually, affordability for residential mortgages is based on a salary multiple. If you’re planning to use rental income (or any other source of funds), things get slightly more complex, which is why you might have fewer borrowing options.

Each lender that accepts rental income may have their own unique method for calculating your overall affordability and how much you can borrow. If you want to get a rough idea, you can look at your last full year’s total gross rental income and then use a 4.5 times multiple.

However, not all lenders will let you use 100% of the rental income. Some lenders may only let you use 50% to 80%, depending on the rest of your finances and property portfolio. Lenders may also use loan-to-value (LTV) caps of around 80%, but this can also vary.

If you want to get a realistic and accurate example of how much you can borrow based on your rental income, it’s worth discussing your situation with a broker, but you can get a rough idea by entering your annual income into the calculator below:

Providing evidence of your rental income

The type of proof you need varies between lenders and their preferences, but here are some examples of the key pieces of evidence that lenders may ask to see:

• Tax returns: If you have SA302s (self-assessment tax returns), ideally from the past 2 to 3 years, you can use them (HMRC usually provides a maximum of 4 years). It’s also worth getting your tax year overviews and any company annual statements from your accountant (if you have one).

• Bank statements: To show the rental income is earned consistently, get hold of as many bank statements as you can from the relevant account. Ideally, a minimum of 6 to 12 months worth, showing the gross rental income received each month. This should match up with your other supporting documents.

• Tenancy agreements: Having copies of rental contracts or tenancy agreements that state the amount of rent in writing, matching your accompanying bank statements can help bolster your application. These agreements also give lenders an outline of the remaining time on leases.

Property management records: If you use a management company or letting agent to help with the day-to-day running of your rental property, it can help support your mortgage application to have these details. Not only is it another source of rental income evidence, but it also verifies associated costs.

How to get a mortgage based on rental income

Here are some straightforward steps to follow if you want to get a mortgage using rental income and stretch how much you can afford to borrow:

1. Gather your details: Along with your relevant documents (proof of address, ID, company details), you should get your self-assessment tax return (SA302) for the past 2 years (or signed company accounts). Also, any corresponding bank statements or supporting documents like tenancy agreements.

2. Get expert advice: If you want to use rental income as your main source of funds, an expert adviser can help you find the best lender. Specialist advice means they can maximise how much you can borrow, presenting your income in the most attractive format using all available tools to leverage your income.

3. Apply for a mortgage: Once your broker has reviewed your personal and property details (including your credit reports), they’ll introduce you to the right lender for your needs and help you through the mortgage application process.

If you want to speak to one of our experienced brokers who specialises in using rental income for mortgages, you can get started here with a free chat:

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Getting another investment property

If you want to buy another investment property using existing rental income or property, here are tips for strategies across different types of property investments:

• Buy-to-let (BTL): If you’re purchasing a buy-to-let, it’s the projected rental income that’s more important than your current income (from wages or an existing rental). Most lenders want to see that the forecasted rental payments (rental yield) will be in the region of 125% to 145% of the mortgage payments.

• Commercial mortgage: Getting a commercial mortgage can be more complex because these loans are created on a bespoke basis. The good news is that a loan can be tailored to your situation (and rental income), but the flip side is that you’ll need to approach a specialist lender and expert support is even more crucial.

• Property portfolio: If you’re already a landlord for multiple properties, or plan to be, then you might need to look at portfolio mortgages. As a portfolio landlord, it’s likely you’ll have multiple streams of rental income from several properties. Some lenders can be more flexible with their affordability assessment or eligibility criteria.

Your broker can help you explore all your potential options and find the best deal based on your current situation and future property investment plans.

Which lenders accept rental income?

Not all lenders are willing to consider rental income for residential mortgages, especially if you don’t have any other additional income. The complexity of using rental income will mean limited lending options when it comes to major banks and high street lenders.

For example, Halifax will consider your gross rental income from buy-to-let properties, and the rental income can be used to offset the BTL mortgage payments, but it’s not used in the affordability calculations. Whereas HSBC will let you use it for the residential affordability assessment (but not if you’re a portfolio landlord).

Usually, approaching a specialist lender will likely be best if you want the lowest rates and the ability to stretch how much you can afford to borrow with rental income.

Why choose Teito for your mortgage needs?

Every type of rental income is unique, and certain sources require more attention than others during the mortgage application. This often means approaching a more flexible lender and getting a skilled broker to help you get the best deal.

Our brokers have plenty of experience securing mortgages for all types and levels of rental income, whether you own a single buy-to-let or have a multiple-property portfolio with a more complex ownership structure.

Here are just some of the reasons people all over the UK choose us for their mortgage needs covering all types of rental income:

• Our brokers specialise in complex rental incomes

• We can introduce you to flexible lenders to enhance your affordability

• Your first chat is free with no obligation to proceed

• We have a 5-star rating on leading review sites

Ready to take advantage of a free, no-obligation chat with a broker who specialises in using rental income for a mortgage? Get started here.