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Over 55 Buy-to-Let Option
Interest-only lending against a let residential property for landlords over 55, assessed on rental cover rather than on earned income.
Dingle Peninsula, Co. Kerry · Maoileann, CC BY-SA 4.0
Who it is for
Later-life residential landlords
What it does
- Assessed on rental cover, not employment income
- Voluntary monthly interest payments, or roll-up
- Portfolio applications considered
- No upper age limit at application
The product in full
Later-life landlords hit a wall that has nothing to do with their finances. A landlord of 68 with three well-let properties and a strong rental income is refused by lenders who assess affordability against earned income, because they do not have any — they retired.
This product assesses the rent instead. Interest-only lending against a let residential property, with the loan sized by rental cover rather than by employment income, and no upper age limit at application. Interest may be paid monthly on a voluntary basis, or rolled up.
The test is a rental cover ratio: the rent must be at least 125% of the interest calculated at a stress rate above the pay rate. The stress rate is the important part and the part that surprises applicants — the cover is not tested at the rate being paid, but at a higher one, so that a rate rise does not immediately break the arrangement.
That means two constraints apply and either can bind: the 60% loan-to-value cap, and what the rent will actually support. Working out which is the binding one is the first thing to do on any case, and the rental assessment worksheet exists for exactly that.
Literature
Product literature is issued to appointed intermediaries. Ask your underwriter, or request it through the enquiry form.
- Product guideOn request
- Rental assessment worksheetOn request
How it works
What happens, in order
From the first enquiry to the point the cover, the contract or the facility is in place.
The rent and the tenancy are established
Actual rent, tenancy type and the letting history, on the rental assessment worksheet.
Rental cover is tested at a stress rate
Rent must be at least 125% of the interest calculated at the stress rate, not at the pay rate.
The loan is sized by the lower of two limits
What the rent supports, and 60% of the property value. Whichever is smaller is the loan.
Repayment basis is chosen
Voluntary monthly interest payments, or roll-up. Voluntary means the arrangement does not fail if a payment is missed.
Portfolio cases are assessed together
Portfolio applications are considered, with each property assessed on its own rent and the whole considered as one exposure.
The numbers
A worked example
Illustrative arithmetic, so the shape of the product is visible rather than described. Nothing here is a quotation or a projection.
A £300,000 let property at £1,650 a month
Working out which constraint binds. Illustrative rates; the arithmetic is exact on them.
- Property value
- £300,000
- Monthly rent
- £1,650
- Illustrative pay rate
- 6.2%
- Illustrative stress rateThe cover test uses this, not the pay rate
- 8.2%
- Maximum loan by loan to value, at 60%
- £180,000
- Monthly interest on £180,000 at the stress rate
- £1,230
- Rental cover achievedComfortably above the 125% requirement
- 134%
- Maximum loan the rent alone would support
- £193,000
- Loan available — the lower of the two
- £180,000
- Monthly interest at the pay rate, if paid voluntarily
- £930
Illustrative rates, not a quotation. Here the loan-to-value cap binds rather than the rent, which is the commoner outcome on a well-let property; on a weakly let one the rent binds first. The rental assessment worksheet does this calculation for a real case.
Which limit binds
The illustrative case above: the two constraints, side by side.
View these figures as a table
| Value | |
|---|---|
| 60% loan to value — The binding limit here | £180k |
| What the rent supports at 125% cover | £193k |
Suitability
Where the Over 55 Buy-to-Let Option fits
The cases it answers, the cases it does not, and what an underwriter needs before quoting.
It is the right answer when
- Residential landlords over 55 with no earned income to evidence.
- Well-let properties where the rent clears 125% cover at the stress rate.
- Landlords who want the option to pay interest but not the obligation.
Look at something else when
- An owner-occupied property — the lifetime mortgage range covers those.
- A holiday home or a property with no tenancy — Second Home Options is the route there.
- Cases where the rent will not clear the cover test at the stress rate.
What we need to quote
- 1.The rental assessment worksheet, with actual rent and the tenancy details.
- 2.Property value, tenure and letting history.
- 3.The applicants’ ages, and for a portfolio case the schedule of properties.
Questions
What brokers ask us about this product
Why is cover tested at a stress rate rather than the rate being paid?
So that an arrangement passing today still works if rates rise. Testing at the pay rate would approve loans that fail on the first increase.
What does "voluntary" interest mean?
The landlord may pay the monthly interest and keep the balance level, or not pay and let it roll up. Missing a payment is not a default, which is what distinguishes this from a conventional interest-only mortgage.
Is there an upper age limit?
No upper age limit at application. The loan is assessed on the rent and the property, which is the whole point of the product.
Can several properties be financed together?
Portfolio applications are considered. Each property is assessed on its own rent, and the portfolio is then looked at as one exposure.
Request information
Ask us about the Over 55 Buy-to-Let Option
The form reaches an underwriter in Dublin. If you are an intermediary, say so and we will route it to the broker desk.