## How to calculate buy-to-let mortgage affordability?

Buy-to-Let mortgage affordability is calculated based on the rent a property achieves. The greater the rent, the higher the loan amount you can borrow.

A rental stress test formula determines the maximum mortgage.

Except, there is also maximum loan-to-value—typically 85% of the value of the property.

### What is the rental stress test formula?

Mortgage Lenders have different criteria, but we can work estimate from the averages.

On standard buy-to-let, your rent must is 125% higher than your mortgage payments at a payment rate of 5.5%.

Given £500 rent the formula would be:

£500 (times) 12 (divide) 125% (divide) 5.5%

On a calculator:

£500*12/1.25/0.05 = £96,000

Higher Rate Taxpayers use an increased rental formula of 145% up from the standard 125%. The use of a Limited Company (SPV) can lower it back down to the standard.

Houses in Multiple Occupation (HMO) also use an increased rental formula of 145% up from the standard 125%.

Remortgaging is exempt from the regulation, but lenders implement the stress test as standard good practice.

Note: These stress tests were introduced in January 2017 by the Prudential Regulation Authority (PRA)

## I'm just below affordability, what can I do?

Talk to our mortgage advisers about a rental stress test top-up. Some mortgage lenders will take your income into account as well as the rental income.

## How is buy-to-let mortgage cost calculated?

The mortgage calculator only calculates the interest-only payment. If you want a repayment mortgage, the monthly cost will be higher.

Given £50,000 mortgage and interest at 2.5% the formula would be:

£50,000 (times) 2.5% (divide) 12

On a calculator:

50000 * 0.025 / 12 = £104

You can lower the mortgage costs by obtaining a mortgage with a lower interest rate. Otherwise, put a higher deposit into the property lowering the loan required.

## What is Rental Yield Calculation?

Landlords use rental yield as a metric to calculate the value of the property investment. It allows the natural side by side comparison of properties.

### How is the rental yield calculated?

On this mortgage calculator, we use Gross Rental Yield using only property value and rent. Net Rental Yield also includes costs and maintenance.

Given £100,000 property and rent of £500 the formula would be:

£500 (multiply) 12 (divide) £100,000 * 100

On a calculator:

500 * 12 / 5000 * 100 = 6%

There is no set rule for minimum rental yield, but our professional landlords tell us they aim for 7% or higher.

### What is the Loan to Value (LTV) Calculation?

Loan to Value (LTV) is used to express how much of the property value will be mortgaged.

A 70% LTV Mortgage on the house valued at £100,000 will have a £70,000 mortgage and £30,000 deposit.

The formula for Loan to Value (LTV) is:

£70,000 (divide) £100,000 (times) 100

On a calculator:

70000 / 100000 * 100 = 70%

Use our Loan-to-Value Calculator to find out your LTV.