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. You will also need to understand the responsibilities of being a landlord and the many costs involved – and as a first-time buyer, you may find getting a buy-to-let mortgage offer a challenge.

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

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Based on our experience of advising new landlords, we answer some of the questions we are most frequently asked 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 good 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.

In spite of changes to taxation and stamp duty, which have made buy-to-let less lucrative than it was, returns can still be much higher than from saving accounts and other investments – so a good move if you are looking to raise money to eventually afford to buy in your desired area.


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

Yes, you need to have a bespoke buy-to-let mortgage product if you are renting out the property. Rental properties are a more risky prospect for lenders than residential homes – if your tenants fail to pay their rent or you experience a void period you may struggle to afford your mortgage. For this reason, buy-to-let mortgages often come with higher interest rates and fees, as well as a lower loan to value ratio, than mortgages aimed at homeowners. As you shop around for a mortgage offer while house hunting, it is vital that you tell lenders you will be renting out the home.


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, it is likely that you’ll need to put down a bigger deposit.


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

To be granted a buy-to-let mortgage you will need to be able to demonstrate that you will meet the monthly repayments. This means that you will need a good credit history with no substantial debts, which could impact on your ability to pay, and a decent income aside from the rent you will receive.

You will also need to show that the property you intend to buy will be a good investment – that there is enough of a market for you to find tenants and that you will receive more money in rent than your monthly outgoings. Most lenders need to be convinced that rental income will cover at least 125% or even 145% of mortgage payments before they’ll consider offering you a loan.


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 be able to 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. As 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.


How 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 may be 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.


Fees on buy-to-let mortgages

Buy-to-let mortgages often come with higher fees, with some charging as much as £2,000 upfront. As with standard residential mortgages, some providers will offer deals with a lower fee in exchange for a higher interest rate.


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 which have had an impact on 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 which prove your identity, your funds and your income – so bank statements and payslips.


Can 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.