Buy to Let First Time Landlord

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Buy to Let First Time Landlord

All about mortgages for Buy to Let First Time Landlord with Joe Eden.

Can I Buy to Let as a First Time Buyer?

The short answer is yes. There is an issue that some people will come up against, though. Typically when you’re buying a Buy to Let property, the income side of things is not as important as when buying a residential property. But when you’re a First Time Buyer, income does come into a Buy to Let mortgage application. 

It’s essentially to prevent people trying to find a loophole – where they buy a Buy to Let and then live in it.  That’s frowned upon by lenders. When you’re a First Time Buyer, lenders are more cautious and typically look to stress test your affordability in a way that they might not on future purchases. 

So in short, yes you can buy a property to let as a First Time Buyer, but your income and expenditure will come under more scrutiny for your first property.

Can I change my residential mortgage to a Buy to Let?

Yes, you can. That process is known as Let to Buy. You remortgage your existing property on a Buy to Let mortgage and it’s definitely possible. It’s less attractive for a lot of people now, however, because the government changed the laws on stamp duty and landlord income tax a few years ago. 

So if you switch your existing residential property into a Buy to Let property and then purchase an onward property to live in, you’d be expected to pay the higher rate of stamp duty for your onward purchase. 

Because of the tax changes, a lot of the Buy to Lets we do now are in limited companies. If you’re converting your residential home to a Buy to Let it would stay in your personal name, which might not be the most tax advantageous thing to do. It’s definitely possible, though, depending on your circumstances.

Can I get a Buy to Let mortgage and live in the property myself?

No, definitely not. There’s a very clear definition in the UK of what different types of finance are used for. If it’s a residential property, the underwriting process is different from a Buy to Let, and the pricing of interest rates and stamp duty is also different. It’s very important to be aware upfront, because you don’t want to be tripped up further down the line. 

What criteria will I need or need to meet for a first time landlord Buy to Let mortgage?

The industry standard is that you need an income of at least £25,000 per annum for most lenders. It goes back to our first point: earning over £25000 a year is one tick in the box for the lender, and the second tick is the affordability. 

It’s hard to go into detail on this podcast because we don’t know what your income is, what you might be buying and what you’re going to be borrowing, but in summary, £25,000 is the industry standard for typical Buy to Let investment mortgages.

What documents will I need to apply?

Similarly to residential, you’d need your ID – a passport or driving licence, and proof of residence with a utility bill or council tax bill. We typically ask for four months’ bank statements and four months’ pay slips. Some lenders ask for less, some will ask for more. 

If you’re a self-employed individual, depending on the lender, we typically need between two and four years’ tax computations and overviews. Other elements are lender dependent. You will also need proof of deposit – that’s probably the most important thing when you buy.

Should I get an interest only or repayment mortgage?

This is something we talk about a lot. There isn’t a one size fits all answer. It depends on your objectives and your life goals. We speak to some people that just don’t like debt – they want to buy with a mortgage and pay it off as quickly as possible. 

I’ve got other clients who have 70 to 80 properties all on interest-only. Their viewpoint is that the properties will probably go up in value over time. When they’re ready to retire they will sell all their assets, pay off the remaining mortgages and be left with a large capital sum. 

If you’re going into Buy to Let investment to produce income, explore interest-only first. The reason I say that is because a repayment mortgage will take more money out of your bank every month. So to maximise your monthly income I would say look at the interest only route. If you’re looking more long term, to buy a property and be mortgage free within ten to 25 years, then repayment is probably the better option for you. 

On the flip side of that, some lenders allow you to overpay so that can be a good tool if you don’t want to commit to a higher repayment mortgage cost. If a lender says you can overpay up to £1,000 per month, as an example, you could just have a direct debit set up paying off a set amount each month. 

If your tenant moves out, or there’s an issue with the boiler and cash gets a little bit tight, you just cancel the extra direct debit. That way you’re treating it as a repayment mortgage but you’ve got the benefit of lower payments if you need them.

Speak To an Expert

We’ll have an initial five minute chat to address any burning questions, then we’ll set up a Zoom call or a meeting and spend an hour or so going through your affordability and any advice that we can offer at that stage.

That’s entirely free. No matter what type of finance we do, whether it’s residential, Buy to Let, bridging finance, we don’t charge a penny until we physically apply for a product for you.

How much deposit do I need on a first time landlord Buy to Let? 

The minimum deposit is typically 20% of the purchase price. But in this market, because rates have risen quite drastically [podcast recorded in March 2023] I would personally aim for 25%. That 5% difference can really affect your interest – it probably means a 1% lower interest rate. That can make a big impact on your monthly profit. 

How much can I borrow?

How much you can borrow is purely down to the rental value of that property. Lenders don’t really like you getting a buy to let investment property that’s bigger than your residential home. That’s probably the first caveat. 

So if you live in a property that’s worth £300,000 but you want a Buy to Let worth £800,000, that’s an issue. Lenders don’t want to fund your Buy to Let property in case in six months’ time you decide you want to move into that nice shiny investment property. 

Every single lender’s affordability criteria will be different, but it’s all about the potential rental value for that property. If you were buying a two-bed flat in Essex for example, we might speak to local agents who say you could get £1,000 per month for that property. That will drive how much you could borrow.

What if I have bad credit? How does this affect getting a first time Buy to Let mortgage?

Bad credit isn’t as much of an issue as it was a few years ago because there are more lenders in the market. Obviously it is going to restrict your options, though. If you’ve got a default, missed mortgage payments or a County Court Judgment it might move us away from mainstream high street lenders. 

The severity of the bad credit situation will affect whether you can get a mortgage, but there are lenders out there that make exceptions for adverse credit. It’s definitely not the end of the world. Just have a chat with a good mortgage broker – we can direct you before you start viewing properties.

Do you have to pay stamp duty as a first time landlord? 

Yes, you do have to pay stamp duty as a first time landlord. You don’t qualify for the First Time Buyer exemption if your intention is to rent that property out. It’s classed as an investment property which kicks in the extra 3% stamp duty surcharge. So unfortunately, you will be paying stamp duty just like a typical Buy to Let landlord.

What other costs are involved in a Buy to Let mortgage?

You’ll have to cover the lender’s survey costs for the mortgage valuation. You’ll have the lender’s arrangement fee which you can often add to the mortgage. It doesn’t always feel like an upfront cost that way, so it’s a little bit softer. 

You’ve also got your legal costs. If you’re buying through a limited company, the legal cost might be a little bit higher as your solicitor will focus on company purchases, unlike a typical residential solicitor. But stamp duty is probably going to be the most expensive cost.

Do many lenders offer first time landlord mortgages?

If you imagine a pie chart you would see hundreds of Buy to Let lenders in the market. The first time landlord market is probably a very small portion of them. But I could probably name four or five lenders off the top of my head that would consider lending to first time landlords. 

A lot depends on your circumstances. If the lender suspects you’re buying a property to live in, that reduces your options drastically. So if you live and work in London and are buying a property in Liverpool, as long as the property is cheap enough for you to fit the affordability stress test, that’s easy. If you live and work in London and you’re trying to buy a property in the next road, the lender might suspect that you’re trying to get a Buy to Let property and then live in it. 

That’s probably the biggest factor for a first-time landlord. But if you already own a property that’s different. A lot more lenders would consider you as a first time landlord once you own your own residential property.

How do I get my first Buy to Let mortgage? 

We can definitely help. Any good broker would give you some time to explore this. Get in touch with us as the first step. Sit down with a broker for typically 30 minutes to an hour. There will be questions that might come up that you didn’t realise you needed to ask. We’ll just chat through your circumstances and we can spot any potential hurdles that you can address now. 

Or, you might think there is something that will affect your plans that isn’t an issue once we’ve explored it. So pick up the phone to a good mortgage broker and explore your options before you start viewing property.

What else do we need to know as a First Time Landlord?

The only other point is that when you are buying to let, it helps to let the emotional side go.

A lot of people want to buy in their local area or a particular road or postcode. But if you’re buying in the South East, you don’t want to pigeonhole yourself and end up stuck with certain lenders or certain strategies. 

Try and keep an open mind and not be emotionally attached to the purchase. It helps to be more figures based and see this as a business.

Your property may be repossessed if you do not keep up with your mortgage repayments. 

The Financial Conduct Authority does not regulate most Buy to Let Mortgages.