Buy-to-let lending criteria for income and commitments | Barclays Intermediaries

Your applicant must have a minimum gross annual income of £25,000. For joint applications, at least one applicant must earn £25,000.
For individual loans above £1m a minimum gross annual personal/earned income of £75,000 per annum is required (for joint applications, the two primary applicants must earn £100,000 where neither applicant earns £75,000).

Gross income can be made up from the following:

• Current basic annual salary
• Monthly bonus/commission/overtime
• Mortgage subsidy
• Car, shift and large town allowance
• Private, company or state pension
• Unearned income from Trust funds/ Investments
• Certain disability allowances
• Income from self-employment - please note that rental income generated from a property portfolio can not be used
• Child benefit
• Criteria and Packaging Guide [PDF, 819KB]. This applies to both personal covenant and the assessment of personal solvency. All applicants need to declare their allowable income from all sources, and give us sufficient evidence to support the lending proposition, where we’ve asked for this.

It is not acceptable to lend where any applicant is currently bankrupt or subject to a Debt Relief Order (DRO) and/or Individual Voluntary Arrangement (IVA), however, lending can be considered provided any bankruptcy, DRO or IVA was registered more than 6 years ago from the date of submission (and hence no longer appears on the credit reference bureau information).

Documentation

• Monthly Bonus - 3 latest payslips which evidence monthly bonus amounts they have received ( Bonus must appear on 3 out of 3 monthly payslips and at least 1out of 5 weekly payslips or 3 out of 13 weekly payslips)
• Monthly Overtime or Commission -3 latest payslips which evidence at least 1 amount

P60 will be needed where more than 50% of the most recent 3 monthly average is needed to meet affordability.

Monthly Bonus

Identify if monthly* bonus is on the most recent 3 month’s* payslips

We'll never use less than 50% of the most recent 3 months' average

Average the total monthly bonus amounts from the last 3 month’s* payslips and use the same payslips to compare the annualised figure against the P60

You'll need to deduct the salary, allowances and any bonus payments that are less frequent than monthly (or more) when reviewing a P60 and calculating the monthly bonus

The remaining figure should then be divided by 12 to show the monthly average from the P60

Take the lower of the following 2 figures (unless the minimum 50% applies)

• 100% of the 3 months' average
• 100% of the latest P60 monthly average

*If frequency of pay is not monthly (e.g. bi weekly / 4 weekly / weekly), Please see weekly, 2-weekly or 4-weekly section below.

Annual Bonus

You'll need to use the gross (pre-tax) bonus figure when calculating your customer's bonuses.

• Bonuses paid less frequently than monthly are classed as annual
• Bonuses paid monthly or more frequently are classed as monthly*

* See Monthly Bonus section for further details

Note - Your customer is not required to have been with the same employer for 2 years, however, the most recent annual bonus must have been paid by their current employer and, in all cases, must have been paid within the last 12 months. An annual bonus can be considered where it has only been paid in the most recent year.

Payslips

The number of payslips required is dependent on the frequency of the bonus. We need evidence of their annual bonus over the last 2 years.

• If your customer receives their bonus Quarterly then we need 8 payslips which evidence the bonus payment
• If your customer receives their bonus Half Yearly then we need 4 payslips which evidence the bonus payment
• If your customer receives their bonus Annually then we need 2 payslips which evidence the bonus payment

Note - You can use the payslips to show annual bonuses over the last 2 years (We don’t need P60s to validate, and we require no additional calculations).

P60s

Where your customer can’t provide the required payslips, we need to confirm the annual bonus is sustainable using the last 2 years P60s.

P60’s are only acceptable where the customer is not also in receipt of regular bonus, overtime or commission.

Obtain the P60s to confirm bonus over the last 2 years.

Calculate the annual bonus figure for both years

If the latest years bonus figure is lower than the previous years, you can only use the latest years figure. If it is higher than the previous years you can use an average of the two years

Calculate Overtime or commission

Identify if monthly* overtime/commission is showing on at least 1 of the most recent 3 month’s* payslips

Average the total monthly* overtime/commission amounts from the last 3 month’s* payslips and use the same payslips to compare the annualised figure against the P60

You'll need to deduct the salary, allowances and any bonus payments that are less frequent than monthly (or more) when reviewing a P60 and calculating the monthly overtime/commission

The remaining figure should then be divided by 12 to show the monthly average from the P60

Take the lower of the following 2 figures (unless the minimum 50% applies)

• 100% of the 3 months' average
• 100% of the latest P60 monthly average

**If frequency of pay is not monthly (e.g. bi weekly / 4 weekly / weekly), see ‘weekly, 2-weekly or 4-weekly’ section below

Examples

Example 1 (evidenced on 3 consecutive most recent payslips)

Basic = £20,000 - Monthly bonus (average over last 3 months) = £1,000 - P60 Total income = £23,000

Bonus amount (P60 value) = £3,000 (divided by 12 = £250 per month)

Monthly bonus Figure to use = £500 per month

Decision - As the P60 monthly average value after basic salary is deducted is less than 50% of the latest 3 payslips, the figure added to application is £500 per month (50% current average monthly bonus = £1,000 x 50%)

Example 2 (evidenced on at least 1 out of 3 recent payslips)

Basic annual income = £20,000 - Monthly overtime (average over last 3 months) = £1,000 per month - P60 Total annual income = £29,000

Less Basic annual income = £20,000

Overtime amount (P60 average value) = £9,000 (divided by 12 = £750 per month)

Overtime Figure to use = £750 per month

Decision - As the P60 monthly average value after basic salary is deducted is lower than 100% of the average of the latest 3 payslips, the figure added to MAX is £750 per month (use the lower of the 2 averages)

Example 3 (evidenced on at least 1 out of 3 recent payslips)

Basic annual income = £20,000 - Commission (average over last 3 months) = £1,000 per month - P60 Total annual income = £38,000 

Less Basic annual income = £20,000

Commission amount (P60 average value) = £18,000 (divided by 12 = £1,500 per month)

Commission Figure to use = £1,000

Decision - As the P60 monthly average value after basic salary is deducted is higher than 100% of average of the latest 3 payslips, the figure added to MAX is £1,000 per month (use the lower of the 2 averages)

Applications for customers that meet the following criteria will initially be assessed on an Interest Coverage Ratio (ICR)

• currently own or part own a UK residential owner occupied property
• require a loan amount <=£1m
• not be considered a portfolio landlord (hold 4 or more BTL mortgages upon completion)
• rental income from background properties must cover the mortgage payments at 100%

The cover required will be dependent on the customers income tax band. The gross rental income, confirmed by the valuer, must cover a stressed monthly mortgage interest payment by at least –

Basic Rate Taxpayers – 125%
Higher/Additional Rate Taxpayers – 160%

If application does not meet eligibility, applicants are required to pass a full personal solvency and affordability test.

In all instances, you should check client affordability prior to submitting a case by completing the BTL affordability calculator.

The following commitments must be considered.

• Hire Purchase Agreements including Mail Order Payments, Bank Loans, Finance Loans, Payday Loan Advances (full amount outstanding applies) or Second Charges.
• Any other or future commitments such as monthly fees/interest payments under a shared equity loan agreement and/or deferred credit payments. If a customer is a guarantor for any mortgage, property rental agreement, secured loan or any other loans then the monthly payment of such commitments is applied in the affordability assessment in line with these requirements.
• Regular Pension Payments – including any additional voluntary payments (eg AVCs) being paid regularly from income. ‘One-off’ contributions, for example from an annual bonus, can be disregarded. (Note: pension contributions will be automatically calculated as part of the affordability assessment. They should not be input as part of the application process)
• Court Orders relating to maintenance payments or judgement debts.
• Child Support Agency (CSA) payments.
• School Fees and Child Care/Nursery costs.
• Current Monthly Student Loan payment.
• Liability for ground rent, service and maintenance charges under any leasehold, commonhold or other agreement – including any equity sharing agreements.
• Credit Card debts (at the rate of 3% of the debt outstanding) including Store Cards.
• Overdraft debts (at the rate of 3% of the drawn balance at the time of application).
• Council Tax.
• Shared Equity Loan.
• Other regular commitments (excluding living expenses, clothes, food, utilities)

Other Considerations:

• Any loan/fixed repayment debt with less than 6 months to run can be ignored, provided that the total balance of loans in this category does not exceed £1,000.
• The total amount outstanding against any ‘payday’ loan advance must be deducted from the applicant’s net income when assessing affordability.
• Any commitment (existing residential mortgage borrowing) which is to be repaid from the new proposed mortgage advance can be ignored provided a specific offer condition is made to this effect.

We define an LLP as a UK-registered partnership which has been established by private individual(s) for the sole purpose of BTL activities. For example, the purchase/remortgage of residential properties for letting.

Remember – we only consider applications from LLPs who are existing clients. For example, clients who already have a BTL mortgage with us. This is subject to the structure of the LLP continuing to be acceptable.

New lending applications for SPVs are limited to

• Further advance
• Transfer of equity

A purchase or remortgage from another lender and unencumbered equity release aren’t acceptable.

If your customer is looking for a Limited Company Buy to Let for purchase or Remortgage?

You may wish to visit Kensington Mortgages, one of the UK’s leading specialist lenders and a subsidiary of Barclays Bank UK PLC. Kensington offer more flexible lending criteria to help people who may not meet typical lending requirements. Learn more.

When an applicant is currently on, or is about to start, a period of reduced income for a defined period of time (e.g. maternity paternity, adoption leave), we’ll base the affordability and overall lending assessment on their ‘return to work’ income details.

To verify their income, please provide all of the following

• Their latest payslip
• Their last payslip before the period of reduced income, if they’ve already started a period of reduced income
• Their return-to-work details. As a minimum, this must include
  
  
  • Intended return date
  • Proposed basic income on return
  • If the applicant is working hourly, the proposed number of hours to be worked on their return
  • If the applicant intends to amend their working hours, confirmation that their employer has approved this

Applicants are classed as self-employed when they hold over a 20% share in a company.

For details of documentary requirements for self-employed, please see Criteria and Packaging Guide [PDF, 819KB].

PAT (Profit after tax)

Profit, after any applicable corporation tax has been deducted, can be considered towards the affordability assessment, in addition to the applicant’s director’s salary where applicable, where the following requirements are met:

• The •Loan amount (less capitalised product fees) is Over or equal to £1m.
• (Where the loan amount is below £1m the affordability assessment will be based on the applicant’s director’s salary and dividends only. PAT cannot be taken into consideration. 
• The borrower(s) collectively own greater than 50% of the company’s shares.

The maximum amount of Limited Company PAT that can be considered as part of the overall affordability assessment is the lower of:

• 50% of the three-year average Limited Company PAT, or
• 50% of the Limited Company PAT for the latest trading year.

The amount of PAT used will be determined by the percentage shareholding of the applicant. E.g. where the borrower is a 70% shareholder a maximum 35% of PAT can be considered (50% of 70%)

The Maximum amount of PAT used towards affordability cannot exceed 5x the average {Salary + Dividends} paid to the applicant(s) over 2 most recent years, as evidenced by the 2 latest tax calculations.

Where more than 25% of the company’s trading income is received in a currency other than GBP the maximum amount of PAT that can be used towards affordability reduces to 40% (further reduced where the applicants’ combined shareholding is less than 100%, as described above).

Applicants that have received a loan from the company that remains outstanding at the point of application would require the amount they are repaying each month to be captured as a commitment within the affordability assessment as 1/12 of the outstanding amount (as evidenced by an accountant’s letter) Detail needed for accountants' letter can be found in ‘Useful documents’ under  ‘Limited Company Profit After Tax'

Our definition of a Special Purpose Vehicle Limited Company is a UK-incorporated company that has been established by private individual(s) for the sole purpose of BTL activities i.e. the purchase/remortgage of residential properties for letting. This is confirmed by the Standard Industry Classification (SIC) Code registered at Companies House and will be checked/evidenced for our purposes by a full Company Search being carried out by our BTL Mortgage Processing Team.

The following codes are acceptable under the current SIC 2007:

68100 – Buying and selling own real estate
68209 – Other letting and operation of own or leased real estate
68320 – Management of real estate on a fee or contract basis

In addition, the following historic codes under SIC 2003 are also acceptable:

• 7012 - Buying & sell own real estate,
• 7020 - Letting of own property, or
• 7032 - Manage real estate

Please remember that we now only consider applications from SPV Limited Companies which are existing clients ie the SPV Limited Company already has BTL mortgage lending with us. This is subject to the structure of the SPV Limited Company continuing to be acceptable. For more information, please call our Intermediary Mortgage Experts on 0345 073 3330 -  Monday to Friday, 9am to 5pm.

New lending applications for SPVs are limited to

• Further advance
• Transfer of equity

A purchase or remortgage from another lender and unencumbered equity release aren’t acceptable.

Alternative SIC codes

• If your client fits SIC code 68201 – Renting and operating of housing Association of real estate, then Kensington Mortgages could be an option.

You may wish to visit Kensington Mortgages, one of the UK’s leading specialist lenders and a subsidiary of Barclays Bank UK PLC. Kensington offer more flexible lending criteria to help people who may not meet typical lending requirements. Learn more.