Many people buy-to-let mortgages as the sole reserve of experienced landlords and property developers with an extensive portfolio. In reality, first-time buyers are eligible for buy-to-let mortgages, and this could be a great way to get yourself on the property ladder.
Not all lenders will offer a buy to let mortgage to first-time buyers, but many will. You may need to take a financial hit on your investment, as a lender may consider a first-time landlord a riskier proposition and assign a higher interest rate, but teaming with a professional mortgage broker will help you unlock the best deal for your circumstances.
If you are interested in taking out a buy-to-let mortgage as a first-time buyer, this guide will explain all you need to know to complete a smooth and successful transaction and begin your journey into home ownership, even if you will not be residing in the property yourself.
Can a first-time buyer get a buy-to-let mortgage?
First-time buyers are just as eligible to apply for a buy-to-let mortgage as anybody else. However, most lenders will consider first-time landlords to be a significantly higher risk than an individual or business that has purchased and maintained property before.
This may be reflected in any mortgage offer, which will not necessarily match that provided to somebody experienced in property trading. You may also find that, while the minimum age for a buy-to-let mortgage is usually 21, some lenders will refuse to make an offer to a buyer younger than 25.
Team up with a reputable broker like ABC Finance to unlock the best deals available to first-time buyers on a buy-to-let basis, ensuring that you can find an agreement that meets your needs.
Is it a good idea for a first-time buyer to invest in buy-to-let?
Investing in a buy-to-let property before buying your own residential property can look a little backward on paper. In reality, this could be an investment that helps you get on the property ladder and helps finance your search for your own dream home.
The most compelling reason to consider a buy-to-let investment as your first property purchase is that you cannot afford to purchase property in the area you wish to live, but can cover the expense of a house elsewhere. Bringing in a rental yield that exceeds your mortgage payments will be additional income that could help you save for a deposit on your own eventual home.
Owning a buy-to-let property and making regular repayments on your mortgage will also bolster your application for a residential mortgage in future, as you have shown that you are a responsible and reliable borrower. As a result, more lenders will likely be happy to work with you, and you may unlock preferential interest rates and more mortgage products.
Investing in a buy-to-let property also gives you an asset that you can use as security if you are seeking other forms of funding. If you are self-employed and are looking for a secured business loan to expand your professional interests, for example, this property can be used as collateral if your lender of choice is willing to accept a tenanted property.
What rates will I pay on a buy-to-let mortgage?
Interest rates on a buy-to-let mortgage are higher than those on a residential equivalent, and some lenders will assign higher interest rates to first-time owners of buy-to-let property to counter the perceived risk of lending to an inexperienced landlord.
If you can afford to lay down a larger deposit on the property, this will be reflected in the interest rate that a lender is willing to offer.
Other factors that influence the interest rate you may be eligible for include your credit score (a clean credit history will always bolster your application,) the rental yield you expect to receive from the property, and your income outside of the buy-to-let property.
What information will I have to provide to apply?
Your first step when looking for a buy-to-let mortgage as a first-time buyer should be to make contact with a broker like ABC Finance. This will ensure that you can access deals that would otherwise be unavailable through conventional high street or online lenders that deal with the general public.
Once your broker identifies the ideal offer for your needs, they will confirm the documents you will need to supply to support your application for a buy-to-let mortgage. Most of the time, you will be asked for the following.
- Proof of your identity and address.
- Payslips from your employer that confirm your monthly income (if applicable.)
- Bank statements that demonstrate your financial position in terms of incomings and outgoings.
- A full and detailed credit report produced by a credit reference agency that lists all financial commitments. You may need to pay for this, but most CRAs offer a free trial.
- Proof that you have immediate access to deposit funds.
You may also be asked some further questions, especially as a first-time buyer, surrounding your business plans surrounding the buy-to-let investment, including your anticipated rental yield, how you will secure reliable tenants, and how you will meet your mortgage repayments if rent is not paid on time by your tenants.
Will I qualify for a buy-to-let mortgage?
All lenders have different criteria for whom they will approve a buy-to-let mortgage. Some will outright decline to work with first-time buyers on this basis, while others will demonstrate greater flexibility with a handful of caveats. Discuss your options with a broker, as industry professionals will enjoy access to a greater range of lenders.
Should I get an interest-only or repayment mortgage?
Many professional landlords choose to take out an interest-only buy-to-let mortgage. This means that you will only need to repay the interest due on the mortgage every month. This will significantly reduce your monthly outgoings, so you can potentially save up a great deal of money accrued through your rental yield.
The only concern with an interest-only buy-to-let mortgage, especially for a first-time buyer, is that this arrangement is temporary. When the interest-only term concludes, you will still owe the entire mortgage balance and this will need to be paid in full. That is not necessarily a problem if you plan to sell the property for a profit at the end of the term, and are confident that you will be able to do so, or refinance your btl mortgage, extending the term further.
If you take out a repayment mortgage on the buy-to-let property, you will gradually chip away at the eventual balance owed. Obviously, this means that you will pay more every month, but it potentially safeguards your investment in the event of a drop in value or unexpected life events.
A repayment mortgage will also be the best option if you wish to use the property as collateral for any kind of secured borrowing. Most loans will be capped at around 80% of the value of the property, and if you have not reduced your outstanding mortgage balance sufficiently, you will not meet this threshold. This type of mortgage is known as an 80% buy to let mortgage.
Will bad credit affect my application?
It’s possible to gain a buy-to-let mortgage with bad credit, even as a first-time buyer. Buy-to-let mortgages are less reliant on a squeaky-clean credit score than residential counterparts, as the theoretical income of a rental yield should cover the mortgage payments.
All the same, issues with credit in the past – especially defaulting on a previous mortgage, or living with an outstanding CCJ, IVA, or bankruptcy order – may exclude you from some mortgage offers, and you may find that lenders increase interest rates or ask for a higher deposit if they consider you a higher-risk borrower.
How much deposit will I need?
Buy-to-let mortgages usually demand a minimum deposit of 20% of the total property purchase price. Some lenders will ask a first-time buyer looking for a buy-to-let mortgage for more than this – the deposit required could be as high as 40%.
This is not all bad news. The more you pay as a deposit, the greater the ownership stake you will have in the property outright and, in theory, your monthly repayments will be lower. Do factor this potentially high deposit into your search for a buy-to-let property, though.
What should I consider before proceeding?
If you remain interested in taking out a buy-to-let mortgage as a first-time buyer, here are some of the fundamental considerations you should take under advisement.
- Is the full package involved in your purchase of a buy-to-let property – including stamp duty, a deposit on the residence, and interest rates associated with your mortgage – truly fiscally prudent when compared to the rental yield you are anticipating? Nobody wants to lose money on a buy-to-let property, and even breaking even could be considered a loss considering the amount of work involved.
- Have you studied the legal responsibilities associated with acting as a private landlord, including minimum health and safety regulations and discrimination laws when choosing tenants? You could find yourself in trouble if you contravene the legal rights of tenants, whether by accident or design.
- Are you familiar with the market rate for rent in the area in which you are buying? If you charge too little you will miss out on potential income, but if you charge too much you will struggle to attract tenants.
- Acting as a landlord can be a lot of work – do you have the time and capacity to manage the needs, complaints, and repairs involved with owning a property? You could outsource this to a third party like an estate agent, but this will eat into the profit of your rental yield.
- How will you cover the mortgage repayments if your tenants move out and it takes time to find replacements, or if tenants are unable or unwilling to pay their rent? The law is heavily weighted in favour of tenants in the latter circumstance, so it may be some time before you can conduct a lawful eviction or receive outstanding funds.
FAQs regarding buy-to-let mortgages for first-time buyers
If you have further queries about buy-to-let mortgages as a first-time buyer, here are three common questions that arise.
Can I have a guarantor for a buy-to-let mortgage?
It’s more challenging to get a guarantor on a buy-to-let mortgage than on a residential agreement. Lenders are automatically on their guard for any risk when considering BTL agreements, and if you need a guarantor, this immediately suggests that your finances are not stable enough to comfortably take on this agreement.
Some lenders will show a little more flexibility when it comes to guarantors on buy-to-let mortgages if you are a first-time investor, but this is not a certainty. If lenders are willing to consider this agreement, all parties involved must have a clean credit history for a minimum of six years to qualify.
How much stamp duty will I pay as a first-time buyer property investor?
Unlike first-time buyers of a residential home, first-time investors in buy-to-let property are not exempt from paying stamp duty. In addition, the threshold for stamp duty on investment property is lower than with a residential home.
The good news is that, as a first-time buyer, the rate of stamp duty you will pay on a buy-to-let mortgage is slightly lower than that of an experienced property investor. At the time of writing, stamp duty for a first-time property investor breaks down as follows.
|Property Value||Stamp Duty Liability|
|£40,000 or less||0%|
|£40,001 – £250,000||3% of total purchase price|
|£250,001 – £925,000||8% of total purchase price|
|£925,000 – £1,500,000||13% of total purchase price|
|£1,500,001 or higher||15% of total purchase price|
An additional 3% surcharge in stamp duty will also be payable on buy-to-let properties purchased in England and Northern Ireland, rising to 4% in Scotland and Wales. This surcharge is not payable on the first property you purchase, but is on subsequent purchases. So if you were to purchase a buy-to-let property for £225,000 in London, you would pay a total of 6% in stamp duty.
Can I move into my buy-to-let property?
When you take out a buy-to-let mortgage, you take out a legally binding agreement that the property will be leased to paying tenants.
If you move into the residence yourself, you will be violating the terms of this mortgage. If your lender discovers this, they can assign a financial penalty, change the terms of your mortgage to increase payments, or even demand full repayment of the mortgage on the spot.
This does not mean that you can never spend a night in the property. You can apply for permission to stay in the property for a short time if you have a compelling reason, such as completing improvements or waiting for another house move to go through.
Any prolonged stay in the residence will create more trouble than it is worth, though. If you decide you want to live in a property you have mortgaged on a buy-to-let basis, apply for refinance as a residential mortgage.