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27 May 2019

Renting to the rich: how big could your buy-to-let mortgage be?

What you need to know about renting a mansion to a millionaire

Coventry Building Society has increased its maximum buy-to-let borrowing limit to £750,000, meaning it now offers mortgages on properties worth up to £1.5m for people borrowing at 50-75% loan-to-value ratio (LTV).

From Justin Bieber and Lady Gaga to your everyday Joe Millionaire, many high-income individuals choose to rent instead of buy.

You don't have to let out a Beverly Hills mansion to the Kardashians, but thanks to some buy-to-let mortgages with large maximum limits, it's possible to buy a high-value property and rent it out to anyone who can afford it, household name or otherwise.

Read on to find out how much you could borrow on a buy-to-let, and discover whether it's a good idea to rent to the rich and famous.

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What is the most expensive buy-to-let property I can get?

When offering home loans, lenders set maximum limits on how much they will offer to borrowers who meet their criteria. These limits can vary depending on the LTV that you're borrowing at - with lower LTVs sometimes offering higher limits.

Metro Bank and Bank of China both offer buy-to-let landlords maximum loans of £5m at up to 60% LTV. This means that - theoretically at least - you could buy a property worth more than £8m if you have £3m as a deposit.

At the other end of the scale, Kent Reliance offers loans of up to £3m at 80% max LTV, meaning you can buy a property worth up to £3.75m with a £750,000 deposit.

The table below shows the maximum loan policies operated by lenders at popular LTVs, along with the most expensive property price you could theoretically purchase.

Who offers the biggest buy-to-let loans? Lender policies

LTVLenderMax loanMax property value
60%Metro Bank£5m£8.3m
65%Bank of China (UK)£5m£7.7m
70%Metro Bank£3m£4.3m
75%Kent Reliance£3m£4m
80%Kent Reliance£3m£3.75m
85%Kent Reliance£1m£1.2m

Source: Moneyfacts, 22 May 2019.

Who can get a large buy-to-let mortgage?

Lenders will have their own criteria for deciding who can afford to borrow what. In other words, you won't necessarily be able to access a lender's maximum loan amount.

Perhaps the most important rubric you'll have to be aware of is the minimum rental income requirement. This is sometimes called the 'interest cover ratio'.

Lenders want to know that you'll definitely be earning enough from your rental property to pay off the loan. To do this, they will require your minimum rental income to be a certain percentage above your mortgage repayments.

For Kent Reliance's 80% LTV loan, for example, your minimum rental income must be 160% of the mortgage interest each month. Although the deal has a fixed interest rate of 3.69% for the first two years, affordability is calculated at 5.5%.*

Things to consider when renting to the rich

Buying such a expensive property to let is a big undertaking. And there are several things you need to be aware of before you go ahead with it.

Housing markets

If your property is worth a lot, and it decreases in value by just a few percentage points, you could find yourself at a huge loss. In the worst-case scenario, you could even end up in negative equity.

Since the referendum on EU membership in 2016, house price growth has stagnated.

Brexit's overall impact on house prices is yet to be determined, but in the short term at least, relying on capital growth alone could be a big mistake.

Expensive void periods

Void periods - the months in which you make no rental income because your property is empty - are a concern for landlords, no matter how much the property is worth. But for investors with larger mortgages, they can be devastating.

Still, they might be unavoidable during periods of renovation. When Justin Bieber moved out of his $100,000-a-month rental mansion in January, for example, his former landlord had to fix a burst pipe before anyone else could move in.

Finding tenants

Void periods can be expensive, so it's important that you're able to find tenants to fill your high-value rental property as fast as you can.

However, finding someone with the money to pay your rent, but who wouldn't prefer to buy a home instead, might be difficult.

At the time of writing, a five-bedroom penthouse in Mayfair is listed on Rightmove for £281,667 a month. The listing has been up since 20 April 2016.

While this property is clearly an exception - in price and in time on the market - it's not unheard of for high-value rental properties to be listed for long periods of time on online property portals.

*Kent Reliance two-year fixed-rate mortgage at 80% LTV - initial rate of 3.69%, revert rate of 6.83%. APRC of 6.5%, fees of £130 + 1.25% of the advance.

Editor's note: This article has been updated clarify the details Coventry's borrowing limit increase.