The Ultimate Guide for First-Time Buyers: Securing a Buy to Let Mortgage

As the rental market continues to grow, more and more first-time buyers are considering investing in buy to let properties. However, the question remains – can a first time buyerA borrower purchasing their first property. qualify for a buy to let mortgage? The answer is yes, but the requirements and qualifications can differ from those of a traditional mortgage. In this article, we will explore the process and requirements for a time buyer to get approved for a buy to let mortgage, and how to make the best investment decisions.

Remember:  YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

The Financial Conduct Authority does not regulate on Buy to Let Mortgages.

Investing in buy to let property makes a great deal of sense, said the British Landlord Association (BLA) in an article on the 18^th of May 2020 – while at the same time also warning that it is by no means a route to getting rich quick.

Being a landlord is no walk in the park, insists the BLA, and it is likely to come with its moments of stress, hard work and, above all, good judgment in your investment decisions. A lot of the qualities it is going to take might require a mature head and at least a little experience of the property market in general.

The question arises, therefore, whether you are likely to be cut out for the role of a landlord if you are a first time buyer – and, more critically perhaps, whether you are even likely to get a mortgage as such an investor.

Although a buy to let (BTL) mortgage for a first time buyer is perfectly feasible, it is likely to be a more challenging process than for those who have proven experience in the property market. You will be swimming against some of the conventional rules on eligibility for a buy to let mortgage.

The conventional rules

Although lenders have different criteria when assessing applications for buy to let mortgages, they typically expect borrowers to:

• own their own home – outright or with the help of a mortgage;
• have minimum earnings of at least £25,000 a year;
• invest in residential property;
• have a healthy credit history;
• be neither too young (over 21) nor too old (aged less than 75 when the mortgage will end); and
• have available a deposit of between 25% and 40% of the purchase price of the let property.

These are the criteria identified by just one website – My Wallet Hero on the 18th of May 2020– but are also reflected quite widely across the mortgage lending market.

Buy to let mortgages for first-time buyers

Like so many of the so-called “rules” surrounding mortgages, it is nevertheless quite possible to secure a buy to let mortgage as a first time buyer. But the application may not be as smooth, you are likely to be assessed far more cautiously, and the pool of potential lenders is likely to be much smaller.

The principal reasons for such caution, of course, have already been mentioned: if you are a newbie, you have little experience in what has recently become a far tougher market. A lender is necessarily wary of your ability to make a go of the business and may harbour concerns about your maintaining the mortgage repayments from the rental income you receive.

Those doubts may be expressed in the type of buy to let mortgage offer made to you as a first time buyer:

• you are likely to need a bigger deposit than more experienced buy to let investors, for example – at least 25% of the value of the let property you want to buy and, possibly, as much as 60%;
• the loan to valueThe ratio of the mortgage amount to the value of the propert... (LTV) ratio is, therefore, likely to be lower than some investors might be offered – a maximum of 75%, for instance, falling to as low as 40%;
• you are unlikely to be offered the most favourable or competitive rates of interest; and
• your credit rating, of course, becomes more important than ever as a measure of your financial responsibility and reliability.

Can I Get a Buy to Let Loan as a First-Time Buyer?

Yes, it is possible for an Inexperienced buyer to get a buy-to-let (BTL) mortgage. However, it is important to note that the requirements and qualifications for a BTL mortgage may differ from those of a traditional mortgage. Lenders will typically consider factors such as your credit score, income, and rental income when assessing your eligibility for a BTL mortgage. It’s also important to keep in mind that being a landlord is not a simple task and requires good judgement, hard work and the ability to handle stress. It’s recommended to consider working with a mortgage broker or advisor who can help you navigate the process and find the best options for you.

If you are interested in getting remortgaging a BTL property, what should you consider?

When remortgaging a BTL property, it is important to consider factors such as the current market conditions, the length of your current mortgage term, and any potential fees associated with switching lenders. It is also important to compare different lenders and their rates to ensure you are getting the best deal.

What Are the Requirements for a First-Time Buyer to Get a Buy-to-Let Mortgage?

The requirements for a first time buyer to get a buy-to-let (BTL) mortgage can vary among different lenders. However, some of the common requirements may include the following:

Minimum deposit

Most lenders will require a minimum deposit of around 25-30% of the property value, although some lenders may require more.

Income

Lenders will typically require proof of a steady income to demonstrate that you can afford the mortgage payments and the ongoing costs of being a landlord.

Credit score

Lenders will check your credit score and history to assess your creditworthiness. A good credit score can improve your chances of getting approved for a BTL mortgage.

Rental income

Lenders will also consider the potential rental income of the property, typically requiring it to be at least 125% of the mortgage interest payments.

Property value

The lender will typically require a property valuation to ensure that the property is worth the amount being borrowed.

Experience

Some lenders may prefer applicants with prior experience in the property market, however, a first time buyer can still get a BTL mortgage.

It’s important to note that these requirements can vary among different lenders, and it’s best to check with the lender directly for their specific requirements.

How to Improve Your Chances of Approval as a First-Time Buyer

As a first time buyer, there are a few steps you can take to improve your chances of getting approved for a buy-to-let (BTL) mortgage:

Improve your credit score

A good credit score can improve your chances of getting approved for a BTL mortgage. Check your credit report for errors, and take steps to improve your score, such as paying bills on time and reducing credit card debt.

Increase your deposit

A larger deposit can reduce the risk for lenders and increase your chances of getting approved.

Provide proof of income

Showing that you have a steady income that can cover the mortgage payments and the ongoing costs of being a landlord can increase your chances of getting approved.

Find the right property

Lenders will typically require a property valuation to ensure that the property is worth the amount being borrowed. Look for a property that is in good condition, located in a desirable area, and has the potential for strong rental income.

Work with a mortgage broker

A mortgage broker can help you navigate the process and find the best options for you. They can also help you understand the requirements and qualifications that lenders are looking for and help you present yourself as a strong candidate.

Understand the market

Get familiar with the current market conditions and interest rates and choose your lender accordingly.

By taking these steps, you can increase your chances of getting approved for a BTL mortgage as a first time buyer.

Types of Buy-to-Let Mortgages Available for First-Time Buyers

There are several types of buy to let (BTL) mortgages available for first time buyers in the UK, including:

Standard BTL Mortgage

This is the most common type of BTL mortgage. It requires a minimum deposit of around 25-30% of the property value and the rental income should be at least 125% of the mortgage interest payments.

Limited Company BTL Mortgage:

This type of BTL mortgage is designed for those who wish to purchase property through a limited company. It can be a good option for those looking to purchase multiple properties or for those who want to keep their personal assets separate from their business assets.

Interest-only BTL Mortgage

This type of BTL mortgage allows the borrower to pay only the interest on the loan for a set period of time, with the option to pay off the capital at the end of the term. This can be a good option for those who expect their rental income to increase over time.

Self-certification BTL Mortgage

This type of BTL mortgage is designed for those who are self-employed or have a complex income. It does not require proof of income, but a higher deposit is usually required.

Fixed-rate BTL Mortgage

This type of BTL mortgage allows the borrower to lock in a fixed interest rate for a set period of time, providing predictability and stability in their mortgage payments.

Variable Rate BTL Mortgage

These mortgages have an interest rate that can change over time, usually in response to changes in the Bank of England base rateThe interest rate set by the Bank of England, affects the in....

It’s important to note that these types of mortgages are not available to all lenders, and the terms and conditions can vary. It’s best to consult with a mortgage broker or lender to understand the best options for your situation.

Interest-only buy-to-let mortgages

Nevertheless, if a lender is content with the assessment and approves your application, you are likely to be offered the same type of mortgage as the vast majority of other buy-to-let investors – namely, a so-called interest-only mortgage.

Just as the term suggests, with an interest-only mortgage, your monthly mortgage repayments only cover the interest charged by your lender. Repayment of the capital is delayed until the end of the mortgage term – which may be as far as 25 years away.

Most landlords aim to make that capital repayment through the sale of the let property – and typically bank on making their greatest profit from this transaction because of the expected increase in property prices throughout the market over 25 years or so.

That is a further risk you take since property prices might have fallen during the interim. So, when it is time to repay the outstanding capital balance on your buy to let mortgage, the property is worth less than you paid for it at the beginning of the mortgage. In that case, you must make up the repayment of capital from your own pocket – and will have made a loss on your venture as a buy to let property investor.

How does an Interest-Only Buy-to-Let Mortgage work?

An interest-only buy-to-let (BTL) mortgage for a Inexperienced buyer works in a similar way as an interest-only mortgage for a primary residence. The borrower is only required to pay the interest on the loan for a set period of time, typically between 5-10 years, with the option to pay off the capital at the end of the term. During the interest-only period, the borrower’s monthly payments will be lower, as they will only be paying the interest on the loan rather than the capital and interest.

During this period, the Inexperienced buyer must have a separate plan to pay off the capital at the end of the term, such as using savings or investment returns. The lender will typically require proof of this plan before approving the loan.

It’s important to note that interest-only BTL mortgages are not as common as traditional repayment mortgages and may not be offered by all lenders. Also, the terms and conditions may vary, and the lender will consider the credit score, income and rental income of the Inexperienced buyer before approving a loan. It’s best to consult with a mortgage broker or lender to understand the best options for your situation.

Advantages and Disadvantages of Interest-Only BTL Mortgages for First-Time Buyers

Advantages of Interest-Only BTL Mortgages for First-Time Buyers:

1. Lower Monthly Payments: Interest-only BTL mortgages typically have lower monthly payments than traditional mortgages, making them more affordable for Inexperienced buyers.
2. Flexibility: Interest-only BTL mortgages offer more flexibility when it comes to making payments. Inexperienced buyers can choose to pay off the interest onlyA mortgage where the borrower only pays the interest on the ... and not the principle, allowing them to save money for other investments or expenses.
3. Potential for Higher Rental Income: Interest-only BTL mortgages allow time buyers to focus on increasing their letting income and potentially making a profit.
4. Potential for Property Appreciation: By not paying off the principle, time buyers have the opportunity to invest their money elsewhere, like in another property or stocks, which has the potential to appreciate in value over time.

Disadvantages of Interest-Only BTL Mortgages for First-Time Buyers:

1. Higher Interest Rates: Interest-only BTL mortgages typically have higher interest rates than traditional mortgages, which can make them more expensive in the long run.
2. Risk of Negative EquityA situation where the value of the property is less than the...: If the property value decreases, time buyers may end up owing more on the mortgage than the property is worth.
3. Repayment Risk: At the end of the term, an Inexperienced buyer will have to repay the full amount borrowed, which can be a significant financial burden if not planned for in advance.
4. Limited Availability: Not all lenders offer interest-only BTL mortgages, so they may be harder to find.
5. Less Tax Deductible: Interest payments on BTL mortgages are only partially tax deductible in the UK, whereas payments on a principle and interest mortgage are fully tax deductible.

It’s important to consider these advantages and disadvantages carefully before deciding whether an interest-only BTL mortgage is the right choice for you as an Inexperienced buyer. It’s also recommended to consult with a mortgage broker or lender to understand the best options for your situation.

Can I Get a Buy to Let Mortgage as a First-Time Buyer?

Yes, it is possible for a first-time buyer to get a buy-to-let (BTL) mortgage. However, it is important to note that the requirements and qualifications for a BTL mortgage may differ from those of a traditional mortgage. Lenders will typically consider factors such as your credit score, income, and letting income when assessing your eligibility for a BTL mortgage. It’s also important to keep in mind that being a landlord is not a simple task and requires good judgement, hard work and the ability to handle stress. It’s recommended to consider working with a mortgage broker or advisor who can help you navigate the process and find the best options for you.

What next?

If you are a first-time buyer looking to invest in a buy to let property, you may find using the services of a specialist broker will help you understand and access the most suitable product for your own unique circumstances.

FAQs

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

Yes, it is possible for a first-time buyer to get a buy-to-let (BTL) mortgage, however, the requirements and qualifications may differ from those of a traditional mortgage.

What are the requirements for a first-time buyer to get a BTL mortgage?

The requirements for a first-time buyer to get a BTL mortgage can vary among different lenders but typically include a minimum deposit, proof of income, a good credit score, and the potential letting income of the property.

Can I get a BTL mortgage with a low credit score?

It is possible to get a BTL mortgage with a low credit score, however, it may be more difficult, and you may have to pay a higher interest rate.

What is the minimum deposit required for a BTL loan as a newbie?

The minimum deposit required for a BTL loan as a newbie can vary among different lenders, but it is typically around 25-30% of the property value.

How much rental income is required for a BTL mortgage as a first-time buyer?

Most lenders require that the letting income for a BTL mortgage be at least 125% of the mortgage interest payments.

Are there any specific types of BTL mortgages available for first-time buyers?

Yes, there are specific types of BTL mortgages available for first-time buyers, such as interest-only mortgages, limited company BTL mortgages, self-certification BTL mortgages, and fixed-rate or variable-rate mortgages

Can I work with a mortgage broker for a BTL loan as a newbie?

Yes, it is a good idea to work with a mortgage broker or lender who can help you navigate the process, understand the requirements and qualifications, and find the best options for your situation.

How can I improve my chances of getting approved for a BTL loan as a newbie?

To improve your chances of getting approved for a BTL mortgage as a first-time buyer, you can improve your credit score, increase your deposit, provide proof of income, find the right property, and work with a mortgage broker. Additionally, understanding the current market conditions and interest rates, as well as researching and comparing different lenders, can also help to increase your chances of getting approved.

Can I get a BTL mortgage as an expat?

Yes, it is possible to get a BTL mortgage as an ex-pat. However, the requirements and qualifications may differ from those of a traditional mortgage. Generally, lenders will require proof of income, a good credit score, and a deposit of at least 25-30% of the property value. Additionally, some lenders may require additional documentation, such as proof of residencyThe borrower's residency status, such as whether they are a ... or employment in the country you.

documentation, such as proof of residency or employment in the country you.

Is there any difference between the mortgage deposit rule for residential and BTL mortgages?

Yes, there is a difference between the mortgage deposit rule for residential and BTL mortgages. For residential mortgages, lenders typically require a minimum deposit of 5-10% of the property value. However, for BTL mortgages, lenders usually require a minimum deposit of 25-30% of the property value. Additionally, some lenders may also require additional deposits depending on the type of loan and your credit score. Read our article on mortgage deposit rules to understand them in detail.

Can I switch to rental property mortgage from a residential mortgage?

Yes, it is possible to switch from a residential mortgage to a rental property mortgage. However, you will need to meet the lender’s requirements and qualifications for a BTL loan. This includes having a good credit score, providing proof of income, and having a deposit of at least 25-30% of the property value. Additionally, some lenders may require additional documentation or deposits depending on your situation.

The above information is correct as of 17/01/2023 and subject to change.