November 16, 2023 2:08 pm

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Nikka Sulton

While many first-time buyers aim to own their homes, some may consider investing in buy-to-let properties under specific circumstances. To do so, you’ll require a buy-to-let mortgage, which undergoes a distinct evaluation process compared to residential mortgages. This can pose challenges for first-time buyers. In this article, we’ll provide guidance on enhancing your prospects of securing a buy-to-let mortgage.


Can a first-time buyer get a buy-to-let mortgage? 

As a first-time buyer looking to venture into the buy-to-let property market, there are additional challenges to consider. Buy-to-let mortgages are tailored for property investment, not residential living.

Lenders view first-time buyers as unknown entities, lacking a track record as homeowners or landlords, which translates to increased risk. This heightened risk factor can make it more challenging to secure the mortgage you desire within your budget. 

Many providers are hesitant to offer buy-to-let mortgages to first-time buyers, and those who do are likely to impose the following conditions:

  • A larger-than-average deposit requirement
  • Higher interest rates
  • Stringent requirements for projected rental income to cover mortgage repayments
  • Scrutiny of your age, credit score, employment type, and income.

Navigating these factors can be a complex process for first-time buyers entering the buy-to-let market.


Should first-time buyers invest in buy to let? 

Entering the buy-to-let property market remains a viable option for first-time buyers, offering several advantages:

  • Property investment in areas outside your current living location can be a pathway to homeownership, even if you continue renting locally.
  • Historically, property has proven to be a relatively secure long-term investment, with values tending to appreciate over time.
  • Rental income from a buy-to-let property can provide a substantial source of income, and lower mortgage rates can enhance your profit potential.
  • As property ownership remains out of reach for some individuals, the demand for rental properties remains steady.

While buy-to-let has its advantages, it’s crucial to be aware of potential challenges associated with being a landlord. Seeking advice from an experienced mortgage broker can help streamline the process and mitigate potential stressors.


Can you get a buy-to-let mortgage with a guarantor?

Obtaining a guarantor for a buy-to-let mortgage is atypical and doesn’t enhance approval prospects. Buy-to-let mortgage decisions hinge on rental income, not the borrower’s personal earnings.

If you have a willing guarantor who already owns property, another option is to include them as a joint borrower on a sole proprietor mortgage. This could make your application more appealing to lenders concerned about your lack of property ownership history.

This arrangement differs from a standard guarantor role and requires discussion with the individual involved. Ideally, mortgage repayments should be covered by rental income, relieving the guarantor from payment obligations. However, tax implications may arise and need consideration.

Available lenders and eligibility criteria

As of August 2022, approximately 30 lenders are open to considering first-time buyers’ applications for buy-to-let mortgages. This includes prominent high street banks like NatWest and Barclays, along with specialized mortgage lenders.

However, it’s important to note that eligibility criteria can be stringent. For instance, certain lenders exclusively offer buy-to-let mortgages to first-time buyers residing in employer-provided accommodation. Alternatively, some lenders stipulate that at least one applicant must be a property owner, while a first-time buyer can act as the second or subsequent applicant.


Here are some additional key criteria:


1. Deposit 

Buy-to-let mortgages necessitate more substantial deposits compared to residential mortgages, a fact that holds particularly true for first-time buyers. To secure such a mortgage, you should have a minimum of 20% to 25% of the property’s value available as a deposit.


2. Rental Income 

When applying for a buy-to-let mortgage, it’s essential to note that most lenders typically demand that the rental income from the property should be sufficient to cover approximately 125% to 145% of the monthly mortgage repayments. First-time buyers in particular may find themselves at the upper end of this range in terms of requirements.


3. Applicant Income 

If you’re a first-time landlord without prior experience, lenders may have reservations about your ability to maintain a steady rental income without extended vacant periods. Consequently, they might scrutinize your other sources of income. While not all lenders impose an additional minimum income requirement, some may expect it to fall within the range of £25,000 to £40,000.


4. Applicant Age 

Residential mortgages typically require a minimum age of 18. In contrast, buy-to-let mortgages commonly stipulate a higher minimum age of 21 or 25. This applies equally to first-time landlords.


5. Credit History 

Buy-to-let mortgages typically don’t place significant emphasis on the applicant’s credit history since rental income is expected to cover repayments. However, for first-time buyers, especially those with bad credit, it may raise concerns for lenders due to potentially higher risk factors.

Other fees apply to buy-to-let mortgages 

When venturing into the buy-to-let market, there are several financial considerations beyond the property purchase itself:

  1. Stamp Duty: As a buy-to-let investor, you won’t qualify for first-time buyer stamp duty exemptions in England or Scotland. However, if you don’t own another property, you can avoid the second property surcharge.
  2. Surveys: Assessing the property’s condition and identifying structural issues or maintenance needs requires investment in surveys.
  3. Solicitors’ Fees: Conveyancing, the legal transfer of property ownership, incurs solicitors’ fees.
  4. Landlord Buy-to-Let Insurance: While not legally mandatory, this insurance can mitigate risks associated with property rental.
  5. Repairs: Maintenance and upkeep expenses are essential, particularly for older properties.
  6. Ground Rent: Leasehold properties may require payment of ground rent to the freeholder.
  7. Furniture and White Goods: Furnishing the property is a variable cost; consider your target tenant demographic, as preferences differ (e.g., families may have their furniture).
  8. Letting Agency Fees: If you opt for a letting agency’s services, their fees should be factored in.
  9. Rent Guarantee Insurance: While optional, this insurance provides protection in case tenants fail to pay rent.

Being aware of these financial aspects is crucial for effective buy-to-let property management.


How much stamp duty do first-time buyer landlords pay?

First-time buyers enjoy a stamp duty exemption for properties valued under £425,000, regardless of whether they intend to reside in or rent out the property. For properties priced between £425,001 and £625,000, a 5% stamp duty rate applies. Properties exceeding £625,000 are subject to the standard stamp duty rates.


What are the tax implications of buy to let?

In addition to Stamp Duty Land Tax, buy-to-let property owners must pay buy-to-let income tax, which is 20% for basic rate taxpayers, 40% for higher rate taxpayers, and 45% for additional rate taxpayers. However, there are some tax benefits to consider.

The Government’s personal allowance for the tax year 2023/24 is £12,570. This is the amount you can earn before you are required to pay income tax.

Furthermore, you are entitled to a 20% tax credit on interest repayments, which can help offset some of your tax liability.

Some buy-to-let investors opt to establish limited companies, subjecting them to the 19% corporation tax rate instead of individual income tax rates, which tend to be higher.

To ensure financial preparedness, it’s crucial to conduct thorough research and factor in all costs associated with purchasing and maintaining a buy-to-let property.



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