BUY TO LET MORTGAGE FOR FIRST TIME BUYER – COMPLETE GUIDE
Jordane Thompson
January 7th, 2021
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Can you get a Buy To Let mortgage as a first-time buyer?
Why would you get a Buy To Let mortgage as a first-time buyer?
How difficult is it to get a Buy To Let mortgage as a first-time buyer?
Do I qualify for a Buy To Let mortgage?
What to consider with a Buy To Let mortgage
Start your property portfolio today!
As a first time buyer are you looking for an alternative route onto the property ladder for the first time? You might have saved up a decent deposit for a property but you want to stay where you currently live, and property prices in the area are high.
Why not consider investing in the property somewhere away from home, that’s much cheaper? You can get monthly returns on money that would otherwise just be sat there in a low-interest savings account.
To do this, you’ll need to have what is referred to as a Buy To Let mortgage. You might be wondering however if you’ve not bought property before, can you just jump in as a first-time buyer with a Buy To Let mortgage? Well, let’s take a look, shall we!
Yes, as a first-time buyer there are certain lenders that will allow you to get a Buy To Let mortgage. There are a wide amount of lenders that offer this, so rates can be fairly competitive, typically they are available between 60-80% LTV (Loan To Value).
There are a few distinct differences between a standard residential mortgage & BTL mortgage as a first-time buyer that you should be aware of, such as higher fees and larger deposit requirements, but we’ll touch on all that later in the article.
If you find yourself with a large deposit, but unable to buy in your particular area due to the high house prices, particularly areas like London or the South East, then you might feel like you’re at a bit of a dead-end.
You’ll likely have the deposit sat in a savings account or ISA, which at the moment is of little benefit due to rock bottom interest rates. There’s an alternative though, becoming a landlord.
In becoming a landlord with a Buy To Let mortgage, you don’t have to buy in the area in which you live. You can look to purchase property in areas which are far more affordable, and then you can rent them out and get consistent returns on your investment on a monthly basis.
There are a few things that you need to think about as a first-time buyer planning on renting out a property, however:
- More responsibility: Being a landlord isn’t the same as having a savings account, there’s a lot more responsibility. As a landlord, you need to ensure the safety of your tenants and adhere to several regulations.
- Letting agent fees: If you live a decent distance from the property you are purchasing it’s likely that you’ll want a company to manage the property and the tenants, but of course this will come at an additional fee.
- Time without tenants: You’ll need to be able to cover the cost of the repayments if you have any time without tenants whilst your mortgage is on-going. This could be when your property is in between tenants and could last several months, which is something you need to plan for.
- Stamp duty works a little differently: As first time buyer with a residential mortgage, you can usually avoid stamp duty completely. Buy to Let mortgages aren’t quite as straight forward though, you do save on the additional 3% surcharge which investors or second homeowners would have to pay, but unfortunately, you won’t qualify for the cut to stamp duty for first-time buyers, so you’ll have to pay the full amount.
- Affordability & deals: The higher percentage of the deposit you have, the better rate you’ll get when it comes to a Buy To Let mortgage. To get this type of mortgage you also have to prove that the property will be profitable and most lenders will require the rental income to cover about 145% of your mortgage payment.
Getting a BTL mortgage as a first-time buyer isn’t necessarily easy. You’ll need a significantly bigger deposit than a standard mortgage and as we mentioned, the larger the deposit, the better deal that you’ll get. Also, as mentioned you won’t qualify for the stamp duty reductions for first-time buyers, which are aimed at helping reduce the financial strain for those trying to get on the property ladder.
An additional potential implication of having your first purchase as a Buy To Let mortgage is when you come to actually buy your first home to live in yourself the lender will assess your debt levels, seeing that you already have an outstanding mortgage to your name, which might make the process harder.
When it comes to getting a Buy To Let mortgage there are a few general criteria that you need to meet in order to qualify. The criteria vary from one mortgage lender to another, as some may be stricter or more flexible. Here is a general review of the criteria of most UK lenders:
- Income & Affordability: The minimum income required for a BTL mortgage is often higher than a standard one, most lenders require you to have £25k per annum at least, although there are a few that will accept lower. They also might take into account your income type, such as if you’re contracting, in receipt of a pension income or self-employed, it might prove trickier, but not impossible, to get a BTL mortgage. The lender will also consider things such as your outgoings.
- Deposit: As we’ve touched on, there’s typically a larger deposit criteria for a Buy To Let mortgage. The typical minimum loan to value (LTV) ratio is around 75% which means you’ll need a deposit of about 15%.
- Credit History: Just like with any mortgage, you’ll have your credit history checked. Your credit history might affect who you can get a loan with and what rate you can get, as some mortgage providers are warier of customers who have little to no credit history, or those with a poor one.
- Borrower Age: This isn’t all lenders, but some BTL mortgage providers will only lend to people over the age of 25. Although there are lenders out there that will provide you with a BTL mortgage as long as you are over the age of 18, none the less it’s something to be aware of.
As you might expect by reading this article, there are a couple more things that you need to consider when choosing to go for a Buy To Let mortgage, when compared to a residential one.
- Fixed-Rate: This is usually when you fix the interest rate of your mortgage between two and five years, it gives you the security of knowing that during that period you will know exactly how much you pay on a monthly basis.
- Standard Variable Rate: This is usually a lenders “default” plan, that you move to when a fixed mortgage expires, and typically it’s expensive, so you should always try and go for a different deal or plan when you get moved onto this.
- Tracker: The tracker mortgage runs at a variable rate, and your monthly interest payment will go up and down based upon Bank of England base rate.
- Discounted Variable: This is a rate that is discounted on your lender’s standard variable rate, but the discounted rate can move at the rate of the SVR.
- Income Tax: You will be earning from the tenants on your property, so you will be subject to income tax, which dependant on your tax band could be 20%, 40% or 45%.
- Landlord Insurance: Commonly referred to as BTL insurance, this covers the properties contents and landlord liability. It’s not always required, but it is advised, and some mortgage companies won’t lend to you unless you have it.
- Stamp Duty: Even as a first-time buyer you will have to pay stamp duty, which is just at the standard rate. There is currently a stamp duty holiday, due to the current pandemic, but the rates after 1st April 2021 are 0% for properties up to £125k, 2% for the next £125k, 5% for the next £675k, 10% for the next £575k and finally 12% for any amount remaining above that.
- Capital Gains Tax: If you sell an asset at a profit, you have to pay Capital Gains Tax or CGT. This depends on your tax bracket, you’ll pay either 18% or 28% once the profit of your property sale is above £11,700.
- Maintenance: As the landlord, you are responsible for any on-going maintenance or repairs to the building, this can be anything from replacing the boiler to repairing the roof, whatever the cost of the repairs you have to be prepared to pay for them.
- Missed or late payments: This could be a period without tenants or with a problem tenant. You might have periods of owning the property when the monthly payment doesn’t come in, and you have to have the savings in order to cover the cost of this, or the property could be repossessed.
Actually acquiring a Buy To Let mortgage is relatively similar to getting a normal mortgage, aside from the change in process we’ve mentioned earlier, such as justifying how much you will earn from it.
Most major banks will offer a BTL mortgage and you can go through a mortgage broker to get impartial advice to get the best deal suited to your current situation. You can also use a variety of comparison sites to get an initial idea of what rate you may get.
Well, really that depends on you, there are a lot of advantages and disadvantages to getting a buy to let mortgage that you have to consider. Here’s an overview to help you make a decision:
Advantages:
- You can earn a consistent rental income
- At the same time, property tends to go up in value over the long term, offering great capital growth
- You can take our insurances which cover you against any loss of income, damage or legal costs
Disadvantages:
- Your tax bill might move to a higher tax bracket
- You need to factor in stamp duty costs and on-going maintenance
- It’s a big responsibility being a landlord
Navigation
Can you get a Buy To Let mortgage as a first-time buyer?
Why would you get a Buy To Let mortgage as a first-time buyer?
How difficult is it to get a Buy To Let mortgage as a first-time buyer?
Do I qualify for a Buy To Let mortgage?
What to consider with a Buy To Let mortgage
Start your property portfolio today!
As a first time buyer are you looking for an alternative route onto the property ladder for the first time? You might have saved up a decent deposit for a property but you want to stay where you currently live, and property prices in the area are high.
Why not consider investing in the property somewhere away from home, that’s much cheaper? You can get monthly returns on money that would otherwise just be sat there in a low-interest savings account.
To do this, you’ll need to have what is referred to as a Buy To Let mortgage. You might be wondering however if you’ve not bought property before, can you just jump in as a first-time buyer with a Buy To Let mortgage? Well, let’s take a look, shall we!
Yes, as a first-time buyer there are certain lenders that will allow you to get a Buy To Let mortgage. There are a wide amount of lenders that offer this, so rates can be fairly competitive, typically they are available between 60-80% LTV (Loan To Value).
There are a few distinct differences between a standard residential mortgage & BTL mortgage as a first-time buyer that you should be aware of, such as higher fees and larger deposit requirements, but we’ll touch on all that later in the article.
If you find yourself with a large deposit, but unable to buy in your particular area due to the high house prices, particularly areas like London or the South East, then you might feel like you’re at a bit of a dead-end.
You’ll likely have the deposit sat in a savings account or ISA, which at the moment is of little benefit due to rock bottom interest rates. There’s an alternative though, becoming a landlord.
In becoming a landlord with a Buy To Let mortgage, you don’t have to buy in the area in which you live. You can look to purchase property in areas which are far more affordable, and then you can rent them out and get consistent returns on your investment on a monthly basis.
There are a few things that you need to think about as a first-time buyer planning on renting out a property, however:
- More responsibility: Being a landlord isn’t the same as having a savings account, there’s a lot more responsibility. As a landlord, you need to ensure the safety of your tenants and adhere to several regulations.
- Letting agent fees: If you live a decent distance from the property you are purchasing it’s likely that you’ll want a company to manage the property and the tenants, but of course this will come at an additional fee.
- Time without tenants: You’ll need to be able to cover the cost of the repayments if you have any time without tenants whilst your mortgage is on-going. This could be when your property is in between tenants and could last several months, which is something you need to plan for.
- Stamp duty works a little differently: As first time buyer with a residential mortgage, you can usually avoid stamp duty completely. Buy to Let mortgages aren’t quite as straight forward though, you do save on the additional 3% surcharge which investors or second homeowners would have to pay, but unfortunately, you won’t qualify for the cut to stamp duty for first-time buyers, so you’ll have to pay the full amount.
- Affordability & deals: The higher percentage of the deposit you have, the better rate you’ll get when it comes to a Buy To Let mortgage. To get this type of mortgage you also have to prove that the property will be profitable and most lenders will require the rental income to cover about 145% of your mortgage payment.
Getting a BTL mortgage as a first-time buyer isn’t necessarily easy. You’ll need a significantly bigger deposit than a standard mortgage and as we mentioned, the larger the deposit, the better deal that you’ll get. Also, as mentioned you won’t qualify for the stamp duty reductions for first-time buyers, which are aimed at helping reduce the financial strain for those trying to get on the property ladder.
An additional potential implication of having your first purchase as a Buy To Let mortgage is when you come to actually buy your first home to live in yourself the lender will assess your debt levels, seeing that you already have an outstanding mortgage to your name, which might make the process harder.
When it comes to getting a Buy To Let mortgage there are a few general criteria that you need to meet in order to qualify. The criteria vary from one mortgage lender to another, as some may be stricter or more flexible. Here is a general review of the criteria of most UK lenders:
- Income & Affordability: The minimum income required for a BTL mortgage is often higher than a standard one, most lenders require you to have £25k per annum at least, although there are a few that will accept lower. They also might take into account your income type, such as if you’re contracting, in receipt of a pension income or self-employed, it might prove trickier, but not impossible, to get a BTL mortgage. The lender will also consider things such as your outgoings.
- Deposit: As we’ve touched on, there’s typically a larger deposit criteria for a Buy To Let mortgage. The typical minimum loan to value (LTV) ratio is around 75% which means you’ll need a deposit of about 15%.
- Credit History: Just like with any mortgage, you’ll have your credit history checked. Your credit history might affect who you can get a loan with and what rate you can get, as some mortgage providers are warier of customers who have little to no credit history, or those with a poor one.
- Borrower Age: This isn’t all lenders, but some BTL mortgage providers will only lend to people over the age of 25. Although there are lenders out there that will provide you with a BTL mortgage as long as you are over the age of 18, none the less it’s something to be aware of.
As you might expect by reading this article, there are a couple more things that you need to consider when choosing to go for a Buy To Let mortgage, when compared to a residential one.
- Fixed-Rate: This is usually when you fix the interest rate of your mortgage between two and five years, it gives you the security of knowing that during that period you will know exactly how much you pay on a monthly basis.
- Standard Variable Rate: This is usually a lenders “default” plan, that you move to when a fixed mortgage expires, and typically it’s expensive, so you should always try and go for a different deal or plan when you get moved onto this.
- Tracker: The tracker mortgage runs at a variable rate, and your monthly interest payment will go up and down based upon Bank of England base rate.
- Discounted Variable: This is a rate that is discounted on your lender’s standard variable rate, but the discounted rate can move at the rate of the SVR.
- Income Tax: You will be earning from the tenants on your property, so you will be subject to income tax, which dependant on your tax band could be 20%, 40% or 45%.
- Landlord Insurance: Commonly referred to as BTL insurance, this covers the properties contents and landlord liability. It’s not always required, but it is advised, and some mortgage companies won’t lend to you unless you have it.
- Stamp Duty: Even as a first-time buyer you will have to pay stamp duty, which is just at the standard rate. There is currently a stamp duty holiday, due to the current pandemic, but the rates after 1st April 2021 are 0% for properties up to £125k, 2% for the next £125k, 5% for the next £675k, 10% for the next £575k and finally 12% for any amount remaining above that.
- Capital Gains Tax: If you sell an asset at a profit, you have to pay Capital Gains Tax or CGT. This depends on your tax bracket, you’ll pay either 18% or 28% once the profit of your property sale is above £11,700.
- Maintenance: As the landlord, you are responsible for any on-going maintenance or repairs to the building, this can be anything from replacing the boiler to repairing the roof, whatever the cost of the repairs you have to be prepared to pay for them.
- Missed or late payments: This could be a period without tenants or with a problem tenant. You might have periods of owning the property when the monthly payment doesn’t come in, and you have to have the savings in order to cover the cost of this, or the property could be repossessed.
Actually acquiring a Buy To Let mortgage is relatively similar to getting a normal mortgage, aside from the change in process we’ve mentioned earlier, such as justifying how much you will earn from it.
Most major banks will offer a BTL mortgage and you can go through a mortgage broker to get impartial advice to get the best deal suited to your current situation. You can also use a variety of comparison sites to get an initial idea of what rate you may get.
Well, really that depends on you, there are a lot of advantages and disadvantages to getting a buy to let mortgage that you have to consider. Here’s an overview to help you make a decision:
Advantages:
- You can earn a consistent rental income
- At the same time, property tends to go up in value over the long term, offering great capital growth
- You can take our insurances which cover you against any loss of income, damage or legal costs
Disadvantages:
- Your tax bill might move to a higher tax bracket
- You need to factor in stamp duty costs and on-going maintenance
- It’s a big responsibility being a landlord
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