Buy To Let For First Time Buyer
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Most people look to buy a home to live in for their first property purchase, but you might be wanting to invest in a buy to let instead.
Not every lender will consider first time buyers for a buy to let mortgage. It becomes easier once you are a residential homeowner. Being a homeowner will also give you valuable experience of the sort of issues that can arise with property.
That said, if you still want to get a buy to let for your first property, it can be done.
Can I get a buy to let mortgage as a first time buyer?
Applying for a buy to let mortgage as a first time buyer can be difficult, but not impossible. The main concern of lenders is that you may say you are going to rent the property out, but you actually plan on moving into it yourself.
Why do lenders think I might move in to my first buy to let?
Buy to let mortgages are often issued on an interest-only basis. This means that your monthly payment consists solely of interest. None of what you have borrowed is being paid back regularly. It is usually repaid by selling the property when the mortgage ends.
This is cheaper than the equivalent capital repayment mortgage. These are common on houses people buy to live in themselves. Each monthly payment goes towards repaying the debt, with some interest on top. If every payment is made in full and on time, the mortgage will be paid back at the end of the mortgage term.
Lenders therefore worry that you actually plan to live in the property yourself, but are applying for a buy to let mortgage as the monthly payments are cheaper. Doing this would be fraudulent.
What’s more, the amount you can borrow on a buy to let mortgage is generally determined by the amount of rent the property might generate. Personal income and expenditure is less of a concern here, whereas if applying for a residential mortgage, income and expenditure is vitally important.
If you can’t borrow enough to buy the property on a residential mortgage, lenders could worry that you are turning to a buy to let mortgage in the hope of borrowing more so you can buy it and move in.
Why am I not allowed to move into my own buy to let?
Buy to let mortgages are for landlords renting to paying tenants. If you want to buy a house to move into, you need a residential mortgage.
Applying for a buy to let mortgage indicates to the lender that you intend to rent the property out. If you then move in, you are in breach of the mortgage conditions. When the lender finds out, they could insist on full repayment of the mortgage, and might look to prosecute you for fraud.
Can I buy my first property as a buy to let and move a family member in?
Renting to relatives requires a special type of mortgage known as a regulated mortgage. This is because renting to family members is seen as riskier than renting to people who aren’t related to you. It’s riskier because they might expect low rent, or because you might not be prepared to kick them out if they don’t pay.
Getting a regulated mortgage as a first time buyer is very difficult. Few lenders offer regulated mortgage deals, and they usually need you to be a homeowner first.
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Do you have a question?
Is there specific criteria for a first time buyer buy to let mortgage?
There are a handful of lenders willing to consider first time buyers for a buy to let mortgage. Each has their own set of criteria. As a first time buyer you should expect a robust examination of your circumstances. The lender needs to be satisfied that you are going to rent the property out, not move into it.
For instance, some lenders will only consider you if you live in accommodation provided by your employer. This gives them some peace of mind that you really do intend to rent the property out. It also gives them a reason why you aren’t currently interested in buying a house to live in.
Is there a minimum age requirement for a first time buyer buy to let mortgage?
There is often a minimum age requirement. It may be higher than for a standard residential mortgage. For buy to lets, it is typically 21 or 25, depending on the lender.
Is there a minimum income for a buy to let mortgage for a first time buyer?
Not all lenders have a minimum income requirement. Those that do may insist on a minimum income of at least £25,000.
Even if there is no minimum income requirement, lenders generally want to see some level of earned income. This gives them reassurance that you can afford the payments if the property is empty and you aren’t getting any rent.
How much can I borrow?
How much you can borrow on a buy to let mortgage is usually determined by the likely rent the property could achieve. The lender will do a valuation of the property as part of the mortgage application process. Part of this valuation includes assessing not just what the property is worth, but also what it might get in rent on the open market.
Lenders don’t want you having to put your own money in to cover the monthly mortgage payments; they want the property to be self-funding. That means getting enough rent to pay the mortgage, and leave you with a bit extra to cover essential maintenance and make some profit.
The calculation used varies from lender to lender, and can be affected by things like the tax bracket you are in and how long you want to fix your interest rate for.
Even though what you can borrow is usually set by the achievable rent, your personal income and expenditure may still be assessed. This is to make sure that you can afford both your lifestyle and the mortgage payments if there is a rental void.
What deposit is needed?
The minimum deposit for a buy to let property is usually 25%. A bigger deposit might be needed in some circumstances, such as if you have adverse credit.
The deposit needed for a buy to let is bigger than what is needed for a residential mortgage. Lenders see buy to lets as riskier. They don’t know who will be living there. Will the tenant pay rent on time, or at all? Will they wreck the place? If the bank needs to repossess, will the property be readily sell-able or does it need a lot of work doing to bring it up to scratch?
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Can I use one of the special purchasing schemes to get my first buy to let?
Special purchasing schemes such as Shared Ownership and Deposit Unlock are not available if the property is to be rented out.
You also can’t use money saved in a Lifetime ISA towards a deposit for a buy to let property.
Do I have to pay Stamp Duty on a buy to let purchase as a first time buyer?
Yes, you will have to pay the standard rates of Stamp Duty.
You don’t qualify for first time buyer relief if you are buying with the intention of renting the property out. However, you don’t have to pay the additional 3% surcharge on your first purchase either.
What documents are needed?
The documents needed for a buy to let mortgage for a first time buyer are the same as those needed for a standard residential mortgage.
They include proof of ID and proof of address, and income verification. You’ll also need bank statements showing both income and expenditure and evidence of deposit.
How can The Mortgage Store Chorley help with buy to let mortgages for first time buyers?
Looking to buy your first property to rent out? The Mortgage Store in Chorley is here to help!
We know buy to let mortgages and can guide you through the process step by step. We’ll explain everything in simple terms, making it easy for you to understand.
With our expertise and support, you’ll be on your way to becoming a successful landlord in no time. Contact us today to get started!
Some types of buy to let mortgages are not regulated by the Financial Conduct Authority.
