Buy to Let First Time Landlord
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Buy to Let First Time Landlord
Lee and Neezam talk all about Buy to Let First Time Landlord.
Can I Buy to Let as a First Time Buyer?
You certainly can. It’s quite common today for somebody to be unable to afford to buy a property where they live, but they still want to capitalise on the property market and buy an investment property in another part of the country.
Alternatively, you might just want to invest and are quite comfortable living with family or in rented accommodation. It’s certainly possible to buy as a First Time Landlord, but the options are very limited.
Affordability is usually the biggest hurdle. Most banks and building societies will consider you as if you’re going to live in the property. They’ll make sure that your personal income is enough to sustain the mortgage payments without rental income coming in. That’s because the affordability rules are slightly different for Buy to Let and residential mortgages, and lenders need to safeguard themselves against risk. You might decide to stop letting the property and live in it instead, for example.
If you’re buying a second, third or fourth Buy to Let property they’ll just look at the rental income, but with the first your income is important. The amount you can borrow may be slightly different as well, as we’ll explore later on.
Can I change my residential mortgage to a Buy to Let?
If you’re currently a homeowner there are two ways of doing this. If you’re thinking of moving out and renting or living with parents etc., you can potentially seek Consent to Let from your current lender. Not all banks allow this, but many do.
Or, you can remortgage to Buy to Let, which is effectively getting a new mortgage. Just to be clear, you cannot let a property out on a residential mortgage. You either need Consent to Let or to remortgage to Buy to Let.
Another common process is to change your residential mortgage to a Buy to Let and buy a new property – this is known as Let to Buy. People think it’s complicated but actually it’s just a simultaneous process. Just have a chat with a mortgage broker and we can explain all the options and how they might work for you.
Can I get a Buy to Let mortgage and live in the property myself?
If you decide to live in your Buy to Let property you are likely to be in breach of your mortgage conditions. If you have a change of circumstances that mean you need to live in the property, make sure you contact your lender. Just check with them whether they will allow that. Generally they will insist that you switch into a residential mortgage. But by talking to your lender they can understand your situation a bit better and make a decision.
What criteria will I need to meet for a First Time Landlord Buy To Let mortgage?
If you’re a homeowner and a First Time Landlord, generally the criteria are very flexible. There are no minimum income requirements. There are the usual credit checks, and borrowing is heavily focused on rental income.
If you’re a First Time Buyer and have never owned a property, getting your first Buy to Let can be a little more complex. It will be heavily assessed on your earnings and your ability to repay the loan as opposed to simply the rental value of the property.
The criteria is effectively the same as when buying a residential mortgage where you’re likely to be able to borrow up to 4.5 or five times your income. Getting advice is really important because getting it wrong can be costly. Do speak to someone qualified, don’t try and tackle this yourself.
What documents will I need to apply as a First Time Buyer?
A broker will help you understand what you need, but generally lenders will want to see proof of income. If you’re employed that means supplying your last three payslips and three months’ bank statements, photo ID (passport or driver licence) and something to prove you live at your address – a utility bill, council tax letter, something along those lines.
If you’re self-employed, you will need your company accounts and tax returns or tax calculation summary depending on the lender. If you’re an existing property owner taking on a Buy to Let, it will likely be a lot more straightforward because, again, there’s no assessment on your personal income other than confirming you meet a certain minimum income criteria of £20,000 to £25,000.
Should I get an interest only or repayment mortgage on a Buy to Let?
There’s no simple answer to this – it really depends on you and your goals. It can be a little bit easier to get an interest only mortgage on a Buy to Let. It’s renowned for being quite difficult on residential mortgages but simpler on Buy to Let.
With an interest only mortgage you’re just paying the interest on the loan, not the amount you originally borrowed. At the end of the 25 year term you still owe the same amount you borrowed. It does mean you’ll have lower mortgage payments which is good if you want to receive a higher monthly income. It’s not so good if you’re trying to repay the loan. You can make overpayments, though, so interest only does give you a bit more flexibility.
With repayment, which is the standard on most residential mortgages, you are physically repaying the loan over the years, so at the end of a 25 year mortgage you have no balance left. But the payments will be slightly higher and so you may not receive much monthly income. We can explore this with you to decide what works best for your situation.
How much deposit do I need on a First Time Landlord Buy to Let mortgage and how much can I borrow?
Whether it’s your first time or not, generally most lenders offer you up to 75% of the property value. That means you need a 25% deposit. There are a few lenders that will go slightly above that but ideally you want to be aiming for 25%.
Don’t forget, you’ll need additional funds to pay for things like stamp duty, solicitor fees, lender fees and any broker fees as well. We will sit down with you and make sure you’ve got what you need.
What if I have bad credit? How does this affect getting a Buy to Let as a First Time Landlord?
So if you have bad credit the short answer is that there are mortgage lenders out there that may accept you. If you have missed payments, defaults or CCJs on your credit record, for example, various banks are willing to accept that. They may not be on the high street, they may be more specialist banks, but we can look for a lender to help you.
Do you have to pay stamp duty as a First Time Landlord? What other costs are involved?
If you already own a home, when buying a first Buy to Let property you will need to pay stamp duty. Based on the current rules, stamp duty will be at the higher rate which is an additional 3% in each band. There are some helpful calculators online – just put the purchase price in and it will show you what the stamp duty cost will be.
If you’re a First Time Buyer purchasing a Buy to Let property, you may qualify under the current rules for the stamp duty incentive, which applies up to a certain price limit.
In terms of other costs you will need to prepare for legal costs to get searches and checks done and for the purchase to be registered with the Land Registry. That requires a solicitor or conveyancer and typically costs £1,500 to £2,000.
On the Buy to Let side mortgage lenders generally charge slightly higher arrangement fees or product fees. In some cases you can add these on to the mortgage loan, or choose to pay them upfront. Sometimes fees have to be paid in advance which can occasionally catch people out.
You may want to get a property survey done – we always encourage clients to do this. It involves getting a qualified professional to check over the condition of the property. This is really important if you’re looking at the property as an investment.
Finally, think about the running costs for your Buy to Let. You might appoint a letting agent to manage the property for you. You will also need buildings insurance and Landlord insurance.
Many landlords also put aside a pot of money to cover maintenance and repairs.
Who offers Buy to Let mortgages for First Time Landlords?
There are a number of lenders that offer First Time Landlord mortgages. Some are high street and some are more specialist. A lot of lenders are only accessible via a broker. What you tend to find is that big lenders like Halifax don’t necessarily offer Buy to Let mortgages – but they do have subsidiaries that do – e.g.Birmingham and Midshires who are only accessible through a broker.
If you’re a First Time Buyer there are even fewer lenders available to you, so speak to a mortgage broker who has access to all the relevant products.
How do I get my first Buy to Let mortgage?
You can do this yourself, but most people don’t know where to begin. It’s a lot harder than you might realise. Some clients come to us because they’ve been declined by a bank – which can hinder your chances of getting another mortgage. Other people just want that support of having someone to do the legwork for them and get it right.
It’s very time-consuming so we would encourage you to book a discovery call with us. We will answer all the questions you’ve got and make sure you have a clear understanding of how we can help you.
What other advice do you have for a First Time Landlord?
Something a lot of people forget is that the rental income you receive from your property is subject to tax. So it’s really important to get tax advice before you take any serious steps towards buying an investment property.
Tax advice can be important for many reasons – to help you set the rent, whether it’s a good idea to buy another property, the stamp duty implications and understanding what tax you are liable for.
That’s not something we can delve in too much to as mortgage brokers, so we will always point you in the direction of a tax advisor.
Your property may be repossessed if you do not keep up with your mortgage repayments.
The Financial Conduct Authority does not regulate some Buy to Let Mortgages.