First Time Landlords
Buy to let can be a tempting investment opportunity. Not only do you own a property which, in a buoyant property market, will steadily appreciate in value, but you could also look to realise a regular income. With the rent set at a rate where it covers the mortgage, it can for some be a double win. But what if you have never owned property before – can first-time buyers enter the buy to let mortgage market?
The short answer is yes, it is possible for a first-time buyer to get a buy-to-let mortgage. However, there are a number of factors to take into account.
First-time buyer buy-to-let mortgage
Most people who apply for a Buy-to-Let mortgage are usually landlords with one property or more, at least already owners of their own homes and looking to invest in a Buy-to-Let property and start a business in the rental sector. So, while it’s not common to find borrowers looking for a Buy-to-Let mortgage as their first step into the property market, we recognise that everyone has to start somewhere.
However, we can’t pretend the process will be as smooth as if you were applying for a standard residential mortgage. With far less experience in property ownership, running a home and maintaining a mortgage, lenders will be far more cautious in their assessment of your capacity to become a landlord. Although there are lenders who will consider offering a Buy-to-Let First-Time Buyer mortgage, you will have fewer options to choose from.
Before they will offer a Buy-to-Let mortgage, most lenders want applicants to have owned a residential property for a period of time. Others will only be happy to lend if you already have a Buy-to-Let mortgage. The problem is not that they don’t believe you are trustworthy – it’s just that you will be a rather unknown entity and the majority of lenders simply do not want to be the first to say yes to you.
The consequence of this is that the section of the market from whom you can expect to successfully obtain a mortgage is reduced. However, this does not mean no one will lend to you – while mainstream lenders might use simple, narrow criteria to qualify mortgage applicants, there are many specialist lenders out there who take a far broader approach, looking at all aspects of your income, assets and financial plan, in order to make a lending decision. To approach them, you’ll need to work with a specialist mortgage broker, who will know how to cut through the red tape and find the right product for your circumstances.
How much deposit does a first time landlord need?
There is a general rule-of-thumb when it comes to mortgage deals – the larger the deposit you can supply, the less of a risk you represent, and so the more favourable the deal you will be able to get. As a first-time buyer applying for a Buy-to-Let mortgage, in the eyes of the lenders you are a higher lending risk than usual, and so they will inevitably ask you for a higher than average deposit.
You should expect to provide at least 25% of the property’s value up front, although in some rare cases a lender may ask for up to a maximum of 60% as a deposit. This may sound like a demanding criteria, but you should remember that the larger the deposit you can provide, the more likely that your mortgage application will be accepted, and the better interest rate you will be offered.
The rent will cover the mortgage anyway – what’s all the fuss about?
While it might be true that the rent you set will cover the mortgage (and perhaps a little extra for profit), in reality this only happens when everything goes to plan and the property is let. There will probably be times when your property stands empty between tenancies – leaving you with no income during that period, but still with mortgage repayments to honour.
You should also bear in mind the additional costs of home ownership and your duties of a landlord – such as landlord insurance, agency fees, property maintenance and repairs – which you will also need to cover. This will all have an impact on the level of rent you need to set, and how this fits with the prevailing market rates at that time and in that location.
It is important to have a contingency plan in case your property has no tenant for a period of time – or perhaps a tenant who is defaulting on their rent payments – leaving you with no income. A good rule of thumb when planning your annual cash flow forecast is to allow for at least one or two months per year when the property could be untenanted. This way, you are likely to run a surplus profit, and be in a good place financially if you experience problems.
How much rent should I charge?
The rent you can charge will depend on the area and the market, but lenders will generally expect to see between 125% and 145% of the mortgage payment covered by rental income, to give them confidence that the mortgage will be affordable.
What about other costs?
You will need to factor in the usual property-buying costs, such as surveys, stamp duty where applicable, and solicitors’ fees. You also need to be on top of the business side of buy to let and make sure the legal and tax obligations of a landlord are met. As well as any relevant property insurance, it is for some advisable to take out landlord insurance. If you intend to use a letting agent rather than managing the property yourself, you will need to factor in their fees. Finally, you need to budget for any repairs, renovations, white goods and furnishings that might be required to get the property up to standard.
What documents are needed for a first time landlord?
To obtain a first-time buyer Buy-to-Let mortgage, at the very least you will need to provide a valid form of identification (usually with a photo, like a passport or driver’s licence), a proof of address (such as your latest council tax or utility bill) and a proof of income (pay slips, bank statement) – pretty much the same documents you would need to provide if you were taking out a conventional residential mortgage as a first-time buyer.
Other documents may also be required, depending on the individual lender’s criteria, your personal circumstances and any other evidence you might wish to volunteer to help prove your creditworthiness – for example, an up-to-date copy of your contract if you are working as a contractor, or a copy of your cash flow forecast or business plan for your property rental business. A professional Buy-to-Let mortgage adviser will be able to give you more guidance on everything you might need to support your application and help you with all the typical requirements.
First Time Landlord Advice
Our team at Just Mortgage Brokers is able to offer you advice gained from many years’ in-depth, hands-on experience in handling specialist mortgages across a huge range of circumstances. As a first-time buyer landlord, your mortgage application will need more attention than most, and one of our advisors will be able to offer you the right guidance to give your application the greatest chance of success.
We have access to around 12,000 mortgage products from 90 lenders, and deals that you won’t find on the high street, often on an exclusive basis. Contact us today to arrange a free, no-obligation consultation and find out exactly what all your options are.
I am a first time landlord with bad credit, can I get a mortgage?
With no history of renting out property and a blemished credit record, you could be forgiven for thinking your chances of getting a Buy-to-Let mortgage would be close to zero. The fact is that while it will be more difficult than if you were a conventional borrower, there are still possibilities available and yes, you can get a mortgage as a first-time landlord with bad credit. However, mainstream lenders will likely shy away from lending to you, and so your options will be more limited than they would be if you had a clean credit record.
In these cases, you will need to approach a specialist mortgage lender who operates in this niche area of the market. They will take a broader view of an applicant’s whole circumstances rather than simply making a decision based on your credit score, and will have criteria and mortgage deals geared to your particular situation. Note that, as with any application for a mortgage, the lender will look at various aspects of your finances in order to assess your ability to service a mortgage, such as your income, level of deposit and the type of bad credit that you have incurred.
Specialist lenders tend not to deal directly with the public, usually only accepting mortgage applications through a trusted mortgage broker instead of advertising online or on the high street. At Just Mortgage Brokers, we have access to a number of specialist lenders who are comfortable lending to first-time-buyers who have incurred some bad credit, and will be able to give you a good overall idea of the options that will be open to you after we have assessed your exact situation. Please contact one of our advisers and we will be able to advise you further.
Can I live in my buy to let property?
Many people ask if it is possible to move into their Buy-to-Let property, in case it should fall vacant for a while, or they need a home temporarily until they can make new arrangements after selling their main place of residence or moving back into town after working away for an extended period. After all, isn’t it their property anyway, and shouldn’t they do what they like with it? Unfortunately, it’s a little more complicated than that.
The answer to the question is no – you are not allowed to live in your Buy-to-Let property. When deciding on whether to grant you a mortgage, lenders use different criteria for a Buy-to-Let property than for a conventional residential mortgage, basing their decision more on the anticipated rental revenue than on your own personal income. When you change the nature of how the mortgage repayments are being funded, you are now outside of their assessment for your loan – this is important to how they view your financial position, and they will take a dim view. There will also likely be conditions built into your Buy-to-Let mortgage regarding who can live there and who you can rent it to.
You should be aware that lenders do make checks to ensure that borrowers are not living in the Buy-to-Let property they have granted a mortgage for. If they do find you living in your property, in breach of your mortgage agreement, then they are likely to take severe action – they could ask for the mortgage to be repaid, and you could risk losing your mortgage facility and your home.
The best thing to do in every case is to talk to your lender about your intention to move back in and open a dialogue about your options. It may be that the most suitable course of action is to convert your Buy-to-Let into a residential mortgage. If you have any queries about this issue and would like to discuss it in more detail, please don’t hesitate to contact one of our advisers.
BUY-TO-LET LENDERS FOR FIRST-TIME LANDLORDS
As the mortgage market has evolved to meet new demands in recent years, there are now a handful of high street lenders that will offer Buy-to-Let mortgages for first time landlords, as well as the specialist lenders you would have been obliged to approach in the past. New products and deals are coming on to the market all the time, and some lenders have made shifts in their criteria to be more accommodating, rather than miss out on market share.
While there are a number of lenders we could recommend for first-time landlords, it would be impractical for us to list them here – the deals, rates and criteria offered today could have changed by next week. Also, your chances of success in obtaining a mortgage are in a large part down to your individual circumstances, and it’s very rare that two first-time landlord borrowers are in exactly the same situation with regard to income, type of property, location, experience, assets and level of deposit available. So, what might be the most suitable lender for one, might not be the right lender for another.
At Just Mortgage Brokers, we have great relationships with all kinds of lenders from all across the mortgage market, liaising with them on a daily basis about mortgage offers and applications from potential borrowers with a huge variety of histories and resources. With this knowledge and familiarity, we can give you the best opportunity to secure the most suitable mortgage for your requirements.
MORTGAGE RATES FOR FIRST-TIME LANDLORDS
The first thing to consider as a first-time landlord when looking at the best Buy-to-Let mortgage rates is whether you want a fixed rate or a tracker rate.
A fixed rate will stay the same for a certain period (usually 2, 3 or 5 years) before reverting to the an interest rate based on the prevailing Bank Of England base rate at the time – this will allow you to predict your payments for a defined time, avoiding unexpected rises, but also losing out if rates fall.
A tracker rate is set as being a certain percentage (or fraction of a percentage) above the Bank of England rate or the LIBOR rate for a certain amount of time (again, usually 2, 3 or 5 years) – if this rises or falls, then so will your mortgage payments. The upside of a tracker is that the interest rate is generally slightly lower than that for a fixed rate mortgage.
However, be careful not to base your assessment of a mortgage product on the headline interest rate alone. There will be variations across products in the duration of an initial rate offer, what it might change to after a certain period, the amount of deposit required in order to achieve a certain rate and the planned total duration of the mortgage, among other aspects.
The rate you will be offered by a lender may also depend on other criteria that will vary from one lender to the next – each will have their own ways of making lending decisions, judging the revenue potential in the property and assessing your creditworthiness. A lot will depend on your individual circumstances and what you want to achieve with your mortgage, which is why we can’t list the most favourable rates here, as they are unlikely to be the same for everyone.
To find out exactly what your Buy-to-Let mortgage options are as a first-time landlord, get in touch with one of our advisors today.
MORTGAGE ADVICE FOR FIRST-TIME LANDLORDS
Being a first-time landlord can be in equal parts exciting, enlightening and daunting. You’re just starting out on a new business adventure where you’re providing a home for tenants to live in, and giving yourself a new revenue stream that should bring dividends for years to come. Finding the right Buy-to-Let mortgage to suit your circumstances and ambitions for your property – as well as your aims for your income – is a key part of the jigsaw puzzle, which is why it pays to get professional advice when you are certain this is the road you want to head down.
A specialist mortgage broker such as ourselves at Just Mortgage Brokers has a complete overview of the mortgage market – all the lenders and their deals, products, policies and criteria, as well as the trends within it – and will be able to give you a strong recommendation for which course to take, according to your individual circumstances and requirements. We also have strong relationships with a great number of lenders and will be able to informally enquire what deal might be possible in a particular situation before actually helping you to put in your application, and often get deals on an exclusive basis.
Through our years of dealing with specialist mortgages – including Buy-to-Let mortgages for first-time landlords – one fundamental fact has become abundantly clear: no two applicants are alike, and no two property purchases are exactly the same. Everyone will have something unique about their case. It’s our job to match you with the most suitable mortgage provider and product for what you want to achieve.
Our initial consultations – where we get a clear idea of your situation and the kind of mortgage that will work well for you – are free and carry no obligation to follow through. Why not find out all your options? Get in touch with our team today.