Central Bank mortgage rules

Decorum

Hi guys, myself and the missus are planning on buying a house and we're hoping to hang on to the one we have and rent it out.

Does anyone know if the banks include rental income as part of your overall income when determining how much you can borrow? I've heard they don't.

Thanks

Q&A

Central Bank rules don't really specify what counts and income, they leave that up to the individual banks.

Banks will take a fairly conservative view of rental income. They'll factor in so many months of the property being vacant. You'll get some benefit for it but probably not anywhere near the equity locked up in the property.

However, there was be a sweet spot where they would allow rental income to offset outstanding mortgage debt when calculating your income multiple. However, I'm not sure how they are treating it given lockdowns and eviction restrictions.

Decorum

Thanks for the info. although, I don't quite understand your last paragraph. Are you saying that (before covid) having rental income can increase the amount you can borrow?

Q&A

Decorum wrote: »

Thanks for the info. although, I don't quite understand your last paragraph. Are you saying that (before covid) having rental income can increase the amount you can borrow?

Yes it's still counts as income but it won't be treated the same as traditional income. I.e., it won't be as simple as saying you'll get 3.5 times your rental income in addition to 3.5 times your salary. Each bank will look at it differently. If you've no outstanding mortgage it'll count positively. Bit if you've a mortgage it won't necessarily offset the outstanding mortgage when calculating what they'll lend to you.

Banks lending standards got a lot more conservative during covid. Income exemptions (> 3.5 time) were withdrawn. I imagine they might also look at rental income less favourably but that's only my personal view. Can't hurt to ask the bank out straight.

Decorum

Ok great. Thanks for the info

square ball

Decorum wrote: »

Ok great. Thanks for the info

I was speaking to my mortgage provider about this last week and their rules have changed regarding rental income. They are not currently offsetting the cost of the mortgage against the rental income. So if you have a mortgage it will be seen as a liability rather than an asset at the moment.

I am hoping it's just for the period of Covid restrictions but you would imagine there will be some legacy left from the pandemic and they may be slow to revert back. I'm not sure how other banks are viewing rental income.

Don't you have to demonstrate six months of income with documentation?

Decorum

square ball wrote: »

I was speaking to my mortgage provider about this last week and their rules have changed regarding rental income. They are not currently offsetting the cost of the mortgage against the rental income. So if you have a mortgage it will be seen as a liability rather than an asset at the moment.

I am hoping it's just for the period of Covid restrictions but you would imagine there will be some legacy left from the pandemic and they may be slow to revert back. I'm not sure how other banks are viewing rental income.

That's weird, you'd wonder how they came to that decision considering the state of the rental market at the moment.

Decorum

[Deleted User] wrote: »

Don't you have to demonstrate six months of income with documentation?

It probably depends on the bank. To demonstrate income I only need to provide 3 most recent payslips and a p60.

You'll need to provide 6 months worth of bank statements though I think

square ball

Decorum wrote: »

That's weird, you'd wonder how they came to that decision considering the state of the rental market at the moment.

Probably something to do with the government stopping evictions during level 5. Homeowner has no options if tenant stops paying rent but it does seem a bit severe. Most people that were working are receiving the Covid payment and should be eligible for assistance paying rent if they are struggling so shouldn't effect too many people. I have only spoken to my own provider so far.

square ball

Was speaking to my mortgage provider today, the rent is not counted as income at the minute but would have no effect on the amount they would lend me so happy enough with that.