I know that buy to let rental coverage is 125%-130% of the rental cover, and you must meet the loan to value specified by the lender. However, I want to know how commercial mortgages are calculated please?

Thanks boys. Ruth

Hi Ruth

What is the reason for the question? Is it to compare the two offerings by the amount of loan you will get, if you can get a better LTV or is it the pricing?

Commercial means different things. My definition of commercial is everybody else apart from the tick box BTL lenders such as TMW,BMS etc. I then split it into the banks and the specialist lenders such as Aldermore Commercial, Paragon and Shawbrook which are only available through a small network of brokers.

Typical Criteria

LTV 70% but can stretch to 75%
Most of the banks will only give you a loan for 5 years with repayments over a 15-20 year period
Specialist lenders -3,5,10 or 20 years interest only. Up to 30 years full repayment or 70% repaid


Bank’s calculation is- Rent less everything they can think of divided by your grandparents age which normally results in them being shut or a LTV of c 40% unless it’s a HMO.

Seriously rental coverage varies so much from bank to bank and is not just on the property you are looking to finance but every other property that you own.

Examples;

Gross rent 190% on a capital and interest basis over a 20-25 year period
90% of rent to provide cover at 125% on an interest only basis at a base of 4.5% plus margin which typically is 4%
70% of rent needs to cover repayments at a rate of 10%

If a lower yielding property then you are looking at 40%-50% LTV due to the need for full capital repayment

The other lenders I mentioned do interest only. Their rates are higher but you get more debt. For a HMO looking at 130% of the rate charged over LIBOR which is c 4.95% for a 5 year loan,5.2% for 10 and 5.43% for 20

If you are just looking for HMO then there are plenty of lenders out there. I could go on for days which I’m sure would bore most readers. To me commercial is when you can’t do a BTL mortgage as it’s dearer, takes longer and is down to an underwriter . When humans get involved you get inconsistency from some of the lenders and it’s understanding what they like and what they don’t.