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 are only three lenders which will accept a first-time buyer as the main applicant on a buy to let mortgage. Two of these lenders will lend to a first-time buyer borrowing via an SPV limited company.
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. As a rough guide, we can generally get a buy to let loan of circa 4 x 5 a joint income. The rental also needs to 'fit' the stress test for the lender.
These particular lenders are only accessible via intermediaries though, so if you are interested in finding out if you might qualify, get in touch.
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 however there are several that don't.
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 and whether you own your own home.
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.
Beckie Pepperrell has left Mortgages for Business for pastures new. For more information or for any questions relating to this blog, please contact the Residential Team on 0345 345 6788, where one of our consultant mortgage brokers will be happy to assist.