Most first-time buyers want to purchase a property for themselves to live in. However, some are looking to invest in real estate by seeking a lender to provide them with a buy-to-let mortgage to start their business.
Buying in sought-after locations such as Wimbledon, Wimbledon Village and Wimbledon Park is a popular investment strategy, as investors can achieve high rental yields in these areas.
Most property investors already own at least one property, but sometimes investors may be first-time buyers. If you are considering investing in a buy-to-let and do not already own a home, getting a buy-to-let mortgage will be more challenging. The criteria for buy-to-let mortgages differ from residential property mortgages, and lenders are more cautious about approving buy-to-let mortgages, especially for first-time buyers.
Fewer buy-to-let products for first-time buyers are on the market, but it is still possible to get a buy-to-let mortgage when you know how. Here we explain everything you need to know to improve your chances of getting an affordable buy-to-let mortgage as a first-time buyer.
While obtaining a first-time buyer buy-to-let mortgage is more complex, it is still possible. However, you will need to meet the criteria the lender sets, which will be more demanding than the criteria for a residential mortgage.
For example, you will usually be required to have at least a 25% deposit for a buy-to-let mortgage, which is much more than some residential mortgages, which only need 10%. Most lenders will also have a minimum income requirement and perform comprehensive credit checks.
Some brokers specialise in finding buy-to-let mortgages for first-time buyers; this is usually the best way to get approved for one.
There are many reasons why first-time buyers may want to invest in a buy-to-let, such as if they can’t afford to buy in the area where they want to live, a buy-to-let elsewhere in the country could help build up a deposit.
Consider a few essential factors before you take the next step and apply for a buy-to-let mortgage. It may not be an excellent time to buy an investment property in a fluctuating property. However, as long as the rental market is strong, property can still be an excellent long-term investment even if the market is volatile for the next few years. Over time, property prices will generally increase, so even if there is a dip in property prices, they will usually recover.
Demand for rental properties is currently much higher than supply, which means high rental yields can be leveraged. Do all the calculations to determine whether the property will bring in enough rental yield to make it viable, and check you have enough money to fund the venture.
A sufficient deposit will be one of the biggest challenges as lenders seek higher-than-average amounts to reduce risk.
Typically, lenders ask for between 25% and 40% of the property value as a deposit. However, it could be even more than this. The bigger your deposit, the better; it will help you find competitive interest rates.
In addition to being able to put down the required minimum deposit, you will usually have to meet the following criteria:
As of December 2023, buy-to-let mortgage rates are typically around 4.5-6.5%. Rates have fluctuated significantly in the last 12 months, so it is best to check the latest rates before deciding whether it is a good time to take out a buy-to-let mortgage.
The rate you get all depends on your Loan to Value (LTV) ratio and how long you fix your rate. Having a lower LTV will help you to access the best mortgage rates. Some lower rates are only available to portfolio landlords and won’t be available to first-time buyers.
Choosing a good broker who specialises in finding buy-to-let mortgages for first-time buyers can increase your chances of securing the best possible rate, saving you considerable sums in the long run.
Buy-to-let lenders will determine how much rental income can be achieved for a property when deciding how much to approve for a buy-to-let mortgage. They will consider your other income, credit history and affordability, but the projected rental income is the key factor in how much you can borrow.
Average rent in south west London ranges from £1,500 for a one-bedroom flat to around £3,000 for a 3-bedroom property. If the lender requires the rental income to cover 125% of the mortgage payments, based on £3,000 as the projected rental income, the monthly mortgage would be a maximum £2,400 per month.
As a first-time buyer, you should provide as much information and supporting documents as possible to help with your mortgage application. Some of the most common documents that buy to let mortgage lenders will request include the following:
Most buy-to-let mortgages are interest-only, so you won’t usually have the option of paying the capital off with a repayment mortgage, and you will only pay off the interest.
You will, however, have the choice between a fixed rate and a variable mortgage. A fixed-rate mortgage will ensure that your monthly payments stay the same and is a less risky option.
With a variable rate, you could end up in a position where your interest rates increase and your monthly mortgage payments increase. This could mean you cannot cover your mortgage payments with your rental income.
It will be challenging to obtain a buy-to-let mortgage if you have bad credit, especially if the issues are in the last few years or if you have been declared bankrupt. However, some lenders may still accept the risk of a borrower with bad credit, but you would expect to have to provide a bigger deposit and have a higher interest rate.
A mortgage guarantor is either a family member or close friend (they need to earn at least £25,000) who will help you buy the property by guaranteeing to pay the monthly buy-to-let mortgage repayments, should you fail to do so.
A guarantor is a good option if, for example, you fail to meet the lender’s criteria by a small margin as a first-time buyer. However, each lender has its assessments and may not always accept a guarantor to help you. A specialist broker will help guide you with this and provide any other mortgage advice you need.
Whilst the potential pool of mortgage lenders or underwriters for first-time buy-to-let mortgages is small, around 20-30 lenders will still consider your mortgage application. These range from some big high street banks, such as Barclays and NatWest, to more niche and specialist buy-to-let lenders, such as RH Private Finance.
You cannot live in the property if you have a buy-to-let mortgage. The lender will stipulate that a contracted tenant must rent it. If you intend to live in the property, you must buy the house with a residential mortgage.
If the property value is lower than £425,000, you will not need to pay stamp duty if this is your first property. First-time buyer stamp duty relief applies even to properties that will be rented out. Properties valued between £425,001 and £625,000 will have a stamp duty of 5%, and properties valued higher than £625,000 will have no stamp duty relief.
Government schemes such as shared ownership and Help-to-buy schemes are not applicable if you are not planning on living on the property.
While it is more difficult and potentially costly to be a landlord as a first-time buyer, finding a buy-to-let mortgage deal with the right advice, planning, and paperwork is possible.
If you are a first-time buyer looking to invest in a buy-to-let property in Wimbledon Village, Wimbledon, Coombe, Kingston Hill or New Malden, then contact us today to find out how we can help you to find the right property.
Ticking off the items on this list will help you keep track of your legal responsibilities when renting out a property.
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