November 10, 2023 4:24 pm

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Nikka Sulton

For those contemplating investment in buy-to-let properties, especially first-time buyers, navigating the distinct evaluation process of buy-to-let mortgages can be challenging. This article offers practical guidance to enhance your prospects of securing a buy-to-let mortgage, addressing the unique considerations involved.


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 is a practical option for first-time buyers, offering notable advantages:

  • Investing in property outside your current living location can be a route to homeownership, even while renting locally.
  • Historically, property has proven a relatively secure long-term investment, with values tending to appreciate over time.
  • Rental income from a buy-to-let property can serve as a significant income source, and lower mortgage rates can boost profit potential.
  • Given the inaccessibility of property ownership for some, the demand for rental properties remains steady.

While buy-to-let has its perks, 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.

Eligibility criteria to get a buy-to-let mortgage:

Here are additional key criteria for buy-to-let mortgages:


1. Deposit

Buy-to-let mortgages require more substantial deposits, especially for first-time buyers, typically ranging from 20% to 25% of the property’s value.


2. Rental Income

When applying for a buy-to-let mortgage, it’s crucial to ensure that the rental income covers around 125% to 145% of the monthly mortgage repayments. First-time buyers may find themselves at the upper end of this requirement range.


3. Applicant Income

For first-time landlords, lenders may scrutinize your ability to maintain steady rental income. While not all impose a minimum income requirement, some expect it to range from £25,000 to £40,000.


4. Applicant Age

Buy-to-let mortgages commonly stipulate a higher minimum age of 21 or 25, unlike residential mortgages that typically require a minimum age of 18. This applies to first-time landlords as well.


5. Credit History

Buy-to-let mortgages usually don’t heavily emphasize the applicant’s credit history, relying on rental income to cover repayments. However, for first-time buyers 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 are exempt from stamp duty on properties under £425,000, whether for residence or rental. For properties between £425,001 and £625,000, a 5% stamp duty rate applies. Properties above £625,000 follow 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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