September 27, 2023 4:14 pm

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Nikka Sulton

In times of high inflation, buying a house to rent out can be a smart financial move. This strategy, known as buy-to-let, offers several advantages, including generating additional income, boosting your overall wealth, and creating a new revenue stream.

When contemplating purchasing a property for rental purposes, it’s essential to weigh the pros and cons carefully. Drawing from my experience of building a successful property portfolio that now serves as my primary income source, I aim to provide insight into the benefits and drawbacks of investment properties.


How does a buy to let work?

A buy-to-let property is one you buy and rent to tenants, who pay monthly rent. As the landlord, you manage it, find tenants, and set rent to cover costs, like the mortgage. If you have many such properties, it’s a property portfolio.


Can you rent out on a first-time buyer mortgage?

Buy-to-let mortgages are specifically designed for landlords purchasing properties to rent to tenants. They cater to the unique needs of rental property ownership. However, if you’re a first-time buyer contemplating renting out your property, you might wonder if you can use a regular first-time buyer mortgage for this purpose.


Are there any special criteria for first-time buyers applying for a buy-to-let mortgage?


Exploring Buy-to-Let Mortgages for First-Time Buyers

Not every mortgage lender is eager to extend buy-to-let mortgages to first-time buyers. In fact, many lenders who do entertain this possibility often tack on additional requirements before approving such mortgages. However, the landscape varies significantly among mortgage providers, so it’s essential not to be disheartened if your initial inquiry yields a rejection.

Among the commonly encountered additional criteria for first-time buyers seeking buy-to-let mortgages, the following factors come into play:

  • Income, Earnings, and Savings: Lenders typically scrutinize your financial resources closely.
  • Evidence of Financial Situation: A comprehensive understanding of your current financial standing is paramount.
  • Borrower’s Age: Age can be a factor, with some lenders setting minimum age requirements.
  • Credit Rating: Your credit score often plays a pivotal role in securing a buy-to-let mortgage.
  • Loan Repayment Assurance: Given that buy-to-let mortgages are usually interest-only, both you and the lender must be confident in your ability to repay the loan in full as stipulated in the mortgage agreement.

As you embark on the journey of exploring buy-to-let mortgages as a first-time buyer, it’s crucial to recognize that these criteria can vary widely from one lender to another. Therefore, persistence and careful consideration of multiple lenders can be key to achieving your goal.


Pros of Renting Out a House

Renting out a house offers several advantages. Over time, it can prove financially beneficial, though it’s not a quick route to wealth. Many property investors, including myself, have seen a positive return on investment from the properties they own.

My personal goal was to establish a steady income stream through investment properties, ultimately building a property portfolio that generated consistent rental income. Over the past decade, I’ve successfully achieved this goal.

Investing in properties can be a supplementary income source alongside your primary job, or it can become your full-time occupation. Regardless of your approach, managing rental properties should be treated like a business. This involves diligently tracking income and expenses and fulfilling tax obligations.

Furthermore, renting out a property can accelerate your progress towards financial goals, including retirement savings. The rental income helps cover expenses such as mortgage payments, repairs, and maintenance while also allowing you to benefit from property appreciation.

It’s important to note that property prices generally tend to rise over time, meaning that when you eventually sell the property, you can potentially make additional profits from the increase in its value. This potential for capital gain adds to the financial benefits of property investment.


Cons of Renting Out a House

While the idea of a steady income and property appreciation may seem enticing, the reality of being a landlord can be more complex. Over the past decade, I’ve encountered numerous issues that could deter potential investors.

Renting out a property requires careful consideration of various factors, from financial implications to tax obligations. In essence, it’s akin to having a second job. To generate additional income, you must delve into extensive research about the area, set competitive rental prices that cover expenses and yield a profit, find reliable tenants, draft legal contracts, oversee property maintenance, handle problematic tenants, and manage tenant turnover, among other tasks.

Moreover, entering the property market requires a significant upfront investment. You’ll need substantial funds for a deposit, as well as reserves for unexpected expenses like repairs, renovations, legal fees, and other unforeseen costs that may arise.

Navigating rental markets can be challenging, especially without prior knowledge and experience. In such cases, you can either opt to pay for professional assistance or attempt to navigate the process independently, which might be time-consuming and potentially more costly if mistakes occur. Therefore, property investment may not be financially feasible for everyone.

Another crucial aspect to consider is the time commitment. Renting out your property can feel like a second job due to the legal responsibilities and issues that can arise. While it can resemble passive income when things are running smoothly, the role of a landlord comes with various demands. It’s essential to be fully prepared for these challenges before entering this venture.


How to Rent Out a House

Here are practical steps and considerations for renting out your investment property: 


1. Check Local Rental Prices

Before setting a rental price for your property, research the current rental rates in your area. Utilize websites like Rightmove or Zoopla for local averages or consult a local estate agent for guidance. Keep in mind that rental prices and vacancy rates can change quickly, so it’s wise to revisit these sources regularly.


2. Review Home Insurance

Check if your existing home insurance covers rental properties. Landlord insurance is essential to protect your investment, as standard homeowners policies may not cover damages caused by renters. Consult with an insurance agent, especially one experienced in rental-related issues, to ensure proper coverage.


3. Understand Rules and Regulations

Homeowners must adhere to specific rules and regulations when renting their primary residence, often imposed by lenders to safeguard their investment. Each lender may have different requirements, so carefully review your contract. Additionally, maintain a reserve fund to address unexpected maintenance or legal costs.


4. Choose the Right Location

Selecting the right location for your rental property is crucial. Opt for areas with high rent prices and low vacancy rates to maximize your investment returns. Conduct thorough research, considering local amenities and crime statistics for the neighborhood. While rentals come with risks, proper research can lead to rewarding outcomes.


5. Decide on Rental Property Type

Determine your goals and whether you aim to be a real estate investor. Rentals can provide passive income but may also make sense for selling in certain market conditions. Assess the local rental market dynamics; in a seller’s market, renting might be advantageous, while in less rent-friendly areas, it may not be the best choice. Consider renting out your property while living there if it’s in a desirable location or if finding a buyer immediately proves challenging.

By following these practical steps and considering local market conditions, you can make informed decisions about renting out your investment property.


What properties can a person choose to rent out to tenants?

Many assume they can rent out any property they own if they find tenants, but it’s not that simple. To rent a property you don’t own, you must either pay in cash or secure a buy-to-let mortgage. Legally, you can rent a property without a buy-to-let mortgage only if you already own it or buy it with your own funds.

Honesty is crucial when discussing your intentions for a property, especially with mortgage providers or lenders. You can’t mislead them by claiming you’ll live in the property and then rent it out later. Even if you genuinely intended to live there but couldn’t, you can’t simply rent it out to recover losses.

Mortgage terms include clauses specifying what you can and can’t do with the property during the mortgage period. It’s essential to adhere to these terms to avoid legal complications.


How much can you borrow for a buy-to-let mortgage?

The amount you can borrow for a property is determined by its rental income.

A general guideline is that your rental income should ideally be 25-45% more than your monthly mortgage payment. For example, if you’re receiving £1,250 in monthly rent, you may be eligible for a mortgage with monthly payments of £1,000.

From the lender’s perspective, this demonstrates your ability to cover the mortgage even during periods when the property is vacant between tenants. It’s a key factor they consider when assessing your eligibility for a mortgage.



MORE Buy To Let blogs HERE: 

Buy-To-Let VS Residential Mortgage

Tips for First-Time Buy-to-Let Investors UK

How to Choose the Right Buy-to-Let Property

Essential Guide to Buy-to-Let Home Insurance in the UK

Getting a Buy-to-Let Loan with Poor Credit

The Benefits of Buy-to-Let Mortgages

Can My Mortgage Be Interest-only?

Starting Your Buy-to-Let Business: A Guide

Who is eligible for a buy-to-let mortgage?

Why Buy-to-Let is not Dead

Property Investment: The Buy-to-Let Mortgage Essentials

Choosing Between Holiday Lets and Buy to Lets

Airbnb Hosting vs. Buy-to-Let: Tax and More

Airbnb vs. Traditional Rentals: Maximizing Returns

Navigating Buy-to-Let Mortgages for First-Time Buyers

Stamp Duty on Buy-to-Let Properties

Can I Use The Equity In My Home As A Deposit?

Can Investors Live in Their Buy to Let Property?

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