Entering the property market? Everyone has to start somewhere, but just how easy is it to get a buy to let mortgage if you are new to the sector? Beckie Pepperrell, consultant mortgage broker explains.
First-time buyer or first-time landlord? –they may sound very similar, but when it comes to getting a buy to let mortgage, to lenders, they are very different.
What is a first-time buyer?
The definition of a first-time buyer is very much down to each individual lender. Some class an individual who has never owned a property as a first-time buyer. Others will base their decision on how long ago the individual owned a property, i.e. if they haven’t owned one in the last three years, they may be classed as a first-time buyer.
A young adult still living at home with parents.
A 40 year old professional who owned a home 15 years ago but sold it on and rented ever since.
What is a first-time landlord?
An individual who already owns their own home but has never owned and let a residential rental property.
A married couple who have only ever owned one family home.
A pensioner who has owned a number of properties over the years but only for living in.
Buy to let mortgages for first-time buyers
At present there is only one lender which will accept a first-time buyer as the main applicant on a buy to let mortgage.
Instead of basing its decision to lend on the applicant’s experience, it will require the applicant to meet the residential affordability calculation. In basic terms this means if you can’t afford a residential mortgage with them, then you won’t be accepted for a buy to let mortgage.
Now, you may imagine this lender will price highly for its one of a kind offering but this is not the case. Rates actually start from 1.73% (4.4% APR) for a 2 year discounted tracker* – one of the lowest buy to let rates in the market.
>> Get a free quote for this rate now
This particular lender is only accessible via intermediaries though, so if you are interested in finding out if you might qualify for it, you will need to get in touch with us or your chosen broker. Do bear in mind that this particular lender does not accept limited company applications – a borrowing vehicle we have been asking our clients to consider in recent months, particularly if you are a higher tax rate payer.
So, if you are first-time buyer wanting to borrow via a limited company, what options do you have?
Unfortunately at this moment in time there are no buy to let mortgages available for SPV limited companies where the main applicant is a first-time buyer, but what about if you were to apply with someone else?
There are several lenders who will allow a first-time buyer to be the second applicant on the application, as long as the main applicant ticks all of its other boxes such as:
• Income of £25k or more per annum
• A homeowner
• An experienced landlord
It is worth noting that all lenders have different lending criteria and some will not need all of the points mentioned above.
For example I recently helped a first-time buyer purchase a buy to let with a first-time landlord.
>> View case study
Buy to let mortgages for first-time landlords
Lenders are much more open to lending to first-time landlords. As I write there are currently 307 different products available to first-time landlords on the market out of a total of 1,033.
Lending is based on the rental income plus your personal income in the background, to cover any rental voids. Most lenders will require you to earn in excess of £25,000 per annum to qualify for a first-time landlord buy to let mortgage.
The rates you can receive can be just as competitive as the rates offered to experienced landlords, but this will depend very much on your particular circumstances in terms of income.
It is worth bearing in mind that lenders do have to be careful when assessing your situation to ensure you are buying a property to rent out and not to live in – often referred to as a back door residential mortgage. If the loan is more than five time your income and the property is close to your current residence don’t be surprised if your application is trickier to push through than you first thought.
If you are a first-time buyer or first-time landlord and want some ideas on the rates available to you give me a call on 01732 471602 or email firstname.lastname@example.org.
You may also find some of the following guides useful:
What is a buy to let mortgage?
How to buy to let
Buy to let properties
Fees & how to apply
*Discounted at 1.73% = Lenders Base Rate (currently 0.50%, variable) + 1.23 for 2 years (to 30/06/2018) reverting to Lender’s Standard Variable Rate (currently 4.50%, variable). Purchase. Early Repayment Charge: 1.00% of the amount being repaid until 30/06/2017, then 0.5% until 30/06/2018. Overall Cost for Comparison: 4.4% APR. Loan to Value: 60% for loans up to £2,000,000. Lender Arrangement Fee: £1,995 added to loan. Broker Fee: A broker fee of £497 will apply (other fee options available). Repayment Options: Interest only or repayment. Rent to Interest Cover: The rental income must exceed 125% of the interest cost calculated at a rate of 5.5%. Minimum Income Required: £25,000 per annum.