If you are thinking about getting on the property ladder, you might be tempted by the unconventional method of purchasing a buy to let property first. Perhaps you don’t want to be settled in one place but still want the security of owning your own property.
If you choose the area wisely, you could charge enough rent to cover the mortgage and then enjoy a property that is gradually increasing in value. But is this even achievable if you’ve never owned a property before?
In this article, we will look at how first time buyers can head down the buy to let mortgage route. You can read more about first time buyers and BTL mortgages here.
A buy to let mortgage is a mortgage against a property that you do not intend to live in. This type of mortgage is often intended for those who plan to let out their properties. The amount you can borrow is often linked to the amount of rental income you can expect to receive. In general, the rental payment will need to be 25-30% higher than the mortgage payments to be considered affordable.
Many lenders will want you to have experience owning your own home before they will grant you a buy to let mortgage. However, some lenders will consider a buy to let mortgage for those who are also first time buyers.
Being a first time buyer doesn’t rule out the possibility of securing a buy to let mortgage. Instead, it simply reduces the number of lenders you can approach. You should be able to secure a buy to let mortgage if you satisfy the following criteria:
Some people think that a buy to let mortgage is easier to secure because it is often based on the rental income rather than being solely based on your personal income. In some ways, this is true, but lenders will also see a buy to let mortgage as higher risk than a residential mortgage. For this reason, it’s important to consider all of the factors before deciding if buy to let is right for you.
As a first time buyer, you will have access to schemes and funds to help you get on the property ladder. If you choose a buy to let mortgage, these schemes will not be available to you. Most people will not pay any stamp duty on their residential property as a first time buyer. However, if you choose a buy to let mortgage, you will have to pay stamp duty. It’s important to consider your options before you proceed.
Buy to let mortgages will require a larger deposit than a residential mortgage. As a rule, you should aim for at least 25% of the value of the property. Some lenders could ask for anywhere up to 60% of the value of the property.
The bigger deposit you have, the better rates you will be offered. If you want to increase your chances of being accepted, you should save as much as possible. Another alternative would be to set your sights on a less expensive property. However, you should keep in mind that this will command lower rental income, so it could end up being counterproductive.
While affordability calculations will factor into the lending decision, you shouldn’t rely on rental income alone. There will be other factors you need to consider that will not be covered by the rental income. You will need to pay for repairs and maintenance, landlord insurance, and you could have periods where the property isn’t tenanted. You should also factor in the possibility that you could have tenants but no rent.
In order to make sure the mortgage is affordable, lenders will want to see that you are covering at least 125-145% of the mortgage payment with rental income. This will help to cover any periods where the property is empty and also cover any unexpected costs.
The short answer is yes. However, poor credit will limit your choices. Lenders will want to see that the mortgage is affordable, that you have a good history with money and that you have saved a significant deposit.
You can often let one of these factors slide a little, provided the other two are in good standing. Getting a buy to let mortgage as a first time buyer is a balancing act. While poor credit might not stand in the way for some people, it could be seen as a negative factor for others.
If you are concerned that you credit score will hold you back, there are a few simple steps you can take to improve it. First, you will need to sign up to the three major credit referencing agencies so you can see where you stand.
You should also make sure you are on the electoral roll at your current address. This will help lenders to confirm your details and can prevent delays to your application.
Next, you should look at your spending habits and try to clear as much debt as possible. Switch all bills and financial commitments to direct debits so that you always pay everything on time.
And finally, close any accounts which you no longer use. A credit card with a large unused limit might make you look responsible, but this can actually make lenders nervous. If they were to agree to your mortgage, you could quickly run up a lot of debt and be unable to pay back your mortgage.
To apply for your buy to let mortgage as a first time buyer, you will need the following documents:
Other documents may be requested based on your individual circumstances. Before applying for your buy to let mortgage as a first time buyer, you should speak to a specialist mortgage broker. They will be able to advise you on the best course of action. They will also be able to tell you which documents you are most likely going to have to provide. This can speed up the application process.
No. If you are purchasing a buy to let property, there are strict rules about who can live there. Lenders will often carry out checks to ensure that the borrower is not living at the property. This is considered mortgage fraud and it will breach the terms of your loan. In the worst case scenario, the lender could revoke the agreement and you could be asked to repay the entire sum in full. This would lead most people to default on their mortgage and they would lose their buy to let property.
It is perfectly legal to rent out a home if you are a cash buyer or you have paid off the mortgage. If a property is still mortgaged, however, you have to be open and honest with the lender about who is living in the property. If you plan to live in your property for a short time and then rent it out, your mortgage provider may prevent you from doing this.
After a period of time, lenders may grant you with something known as “consent to let” or “permission to let” and this would allow you to rent out your property. This will usually only be at the end of your initial tie-in period. You may also be charged an administration fee to change the terms of your mortgage agreement.
If you aren’t sure if you want to live in the property, a better option could be to secure a residential mortgage as a first time buyer.
This will all depend on your individual circumstances and your chosen lender. While some will allow you to change the terms of your agreement, if they decline, your only option would be to remortgage the property. Depending on your existing agreement, this could land you with large fees and penalties. An easier and cheaper option might be to wait out the terms of your agreement and then seek out permission to let from your lender.
If you’re ready to discuss your buy to let mortgage as a first time buyer, get in touch with Niche Mortgage Info today.