If you’re a first-time buyer, investing in buy-to-let could be a way of getting a foot on the housing ladder and bringing in extra income while you save for your dream home.

You will need money upfront for a deposit and enough income to cover your mortgage payments if you have no rent coming in. As a first-time buyer, you may find getting a buy-to-let mortgage offer challenging.

But if you do your sums and plan your project carefully, buy-to-let can be a worthwhile and profitable first step to homeownership.

Need a Property Valuation?

Looking to Sell or Let Your Property? Book Your Free Property Valuation

Based on our experience of advising new landlords, we answer some of the most frequently asked questions about buy-to-let mortgages for first-time buyers.

Why do first-time buyers invest in property?

The idea of becoming a landlord before you’ve even purchased a house of your own to live in may sound … unusual, but there are some excellent reasons why a first-time buyer may decide to invest in buy-to-let property.

You may have a decent income and some savings, but not enough for the deposit on a property where you currently live. Buying-to-let in a cheaper area of the country would give you a foot on the property ladder, a regular income and a home, should you wish to relocate later on.

Despite changes to taxation and stamp duty, which have made buy-to-let less lucrative, returns can still be much higher than from saving accounts and other investments.

Do you really need a buy-to-let mortgage?

You can rent a property without a buy-to-let mortgage only if you own the property outright. If you do need a mortgage, you must be honest with your lender about your intentions for the property. If you let your property without consent from your lender, you will breach the terms and conditions of the loan, and your lender can require immediate repayment of the entire loan amount.

Buy to let mortgages are much like ordinary residential mortgages with three main differences – they come with higher interest rates and fees, a lower loan to value ratio and are generally offered on an interest-only basis. Lenders see rental properties as riskier because most buy-to-let borrowers rely on the rental income to cover the mortgage. If your tenants have problems paying the rent, this could have a knock-on effect on the mortgage repayments.

Can a first-time buyer get a buy-to-let mortgage?

Yes, but you may find it more difficult to secure a loan than if you have owned property before. This is because fewer buy-to-let mortgages are available to first-time buyers – around a fifth by some reckoning. Plus, you’ll likely need to put down a bigger deposit.

What are the criteria for getting a buy-to-let mortgage?

To get a mortgage on an investment property, you will need a deposit of a least 20%-25% of the property’s value.

Prepare yourself for strict affordability tests. Most lenders need to be convinced that the profit from your rental property will cover at least 125% or even 145% of mortgage payments before they consider offering you a loan.

Like any other mortgage, you will also need a good credit record and be able to comfortably afford the repayments on any other borrowings you may have. Most lenders have upper and lower age limits for mortgages. Most require you to be 21 years or older at the start of the mortgage and younger than 70 when the mortgage is due to finish.

What if I am refused a buy-to-let mortgage?

Talk to a mortgage broker about the different products available. If you are struggling to obtain an offer, you may increase your chances by using a guarantor.

Which lenders offer buy-to-let mortgages?

High street banks and building societies, and specialist lenders all offer buy-to-let mortgages. Some of these will be open to first-time buyers, so start by looking at what’s available on comparison sites. Specific mortgages for first-time landlords can be hard to track down; you may need to consult a mortgage broker with experience in this area.

banks offering btl mortgages for first time buyersHow much deposit do first-time buy-to-let investors need to put down?

As a first-time buyer landlord, you will almost certainly need to put down a larger deposit than a domestic buyer – this could be around 25% of the property’s value but maybe as high as 40%. The larger the deposit you have, the more likely you are to get a mortgage offer and a better rate.

How is my income used to calculate affordability?

In the past buy-to-let mortgage lenders would make offers based on your anticipated rental income – which sometimes left borrowers unable to afford their mortgage payments. Now lenders tend to look at your personal income too. They may decide how much to lend you based on a multiple of – 4 or even 5 times – your income.

What are the fees on buy-to-let mortgages?

Arrangement fees on buy to let mortgages tend to be higher, with some charging £2,000 upfront. Some lenders offer mortgages with no arrangement fees, but the interest rates will tend to be higher.

What if I have bad credit?

Getting a buy-to-let mortgage may not be impossible, but it will be more difficult than for other applicants. As with anyone looking to borrow money after a bad credit history, it’s advisable to try and improve your credit rating as much as possible by paying off debts where you can, not taking on any new loans and making sure you don’t miss any payments in the run up to your application. You may need to provide a bigger deposit and look at properties with a higher rental yield than other applicants.

How much stamp duty will first-time buy-to-let investors pay?

In recent years, the government has made changes to stamp duty that have impacted buy-to-let landlords. There is currently a 3% stamp duty surcharge on second homes. The good news for first-time buyers is that you won’t need to pay the surcharge as you don’t already own property.

However, you won’t be eligible for the reduced stamp duty for first-time buyers, introduced to help them onto the housing ladder (first-time buyers pay no stamp duty on the first £300,000 of a home costing up to £500,000). This is because the benefit doesn’t apply to buy-to-let properties.

What documents are needed for a first-time buyer buy-to-let mortgage application?

As with any other applicant, you’ll need to provide documents that prove your identity, funds, and income – so bank statements and payslips.

documents needed for btl mortgageCan I live in my buy-to-let property?

Not if you have taken out a buy-to-let mortgage. The terms of your mortgage won’t allow you to live in the home yourself. If you want to live in the property while renting out a room, you can apply for a normal residential mortgage, but you should tell the lender of your intentions.

Is it illegal to rent out a house without a buy-to-let mortgage?

It could be. You will have obtained a mortgage without declaring the full facts to your lender, so technically you could be committing fraud. If you already have a residential mortgage on a property, and you inform the lender, some will allow you to continue on the same basis by giving you a ‘permission to let’ but many will ask you to move to a buy-to-let product.

Can first-time buy-to-let investors use the government’s Help to Buy scheme?

No, this scheme is aimed at helping people get on the housing ladder and find a home to live in, so you won’t be eligible.

Can I get my first-time buyer buy-to-let mortgage through a limited company?

Yes. If you are a higher rate taxpayer there are advantages to renting property through a limited company. However, limited companies are considered riskier than individuals, because of their limited liability status, so you may find getting a mortgage offer even harder.

How does buy-to-let affect your chances of buying your own home?

If you already have a mortgage on a rental property you may find it harder to obtain a second one on a home to live in, as lenders will look at all of your debts when deciding whether to make an offer.

Should you wish to hold on to your buy-to-let property, you will also need to pay the stamp duty surcharge on the property you are buying to live in.

Find out more

If you are new to renting out property in the Newington Green, Stoke Newington or Islington area, contact M&M Property today. We’d be happy to advise you further on the finer details of becoming a landlord.