Buy to Let First Time Landlord
Get in touch for a free, no-obligation chat about how we might be able to help you.
Get In Touch
Buy to Let First Time Landlord Part 1 Frequently Asked Questions
Listen below as Michael Webb talks all about Buy to Let First Time Landlord Part 1
In less than 30 minutes, you’ll know a lot more about how to get a Buy to Let First Time Landlord Part 1
Buy to Let First Time Landlord Part 1
Michael Webb talks us through Buy to Let for First Time Landlords.
What are the basics of Buy to Let mortgage as a First Time Landlord?
There’s lots of things to consider before getting involved in Buy to Let property. The basics are that the property has to be rentable. There’s lots of terms and conditions and legislation around letting property. It’s too in-depth to go into on this podcast, but people should investigate the laws and speak to a letting agent to get an idea of what’s required.
A Buy to Let mortgage provider is going to expect all that legal compliance to be in place before they lend to you.
You will need a deposit available, from your savings, from remortgaging residential property, from inheritance or maybe a gift from family. In this episode we’ll cover the criteria involved and the considerations involved.
How do you search for First Time Landlord Buy to Let mortgage deals?
In contrast to the residential homeowner market, the vast majority of Buy to Let mortgages are transacted by a broker. There is no direct option with a lot of the lenders. So the best way to start searching for a mortgage is to make an appointment with a whole-of-market mortgage broker – ideally one who specialises in Buy to Let.
Here at Mortgage Republic a large proportion of our clients are landlords – from First Timers all the way up to very large portfolio landlords. So your first step is to have a chat with us.
How can expert advice make Buy to Let easier for First Time Landlords?
An experienced Buy to Let mortgage broker will smooth that journey to getting the mortgage offer you require. We know the lenders’ criteria – and they do change.
Some lenders may have minimum income requirements for First Time Landlords, while others may not. There are different calculations on how much you can borrow based on the rent and whether additional income is needed to top up that calculation.
We can confirm what deposits will be needed and an idea of stamp duty consequences. We can introduce you people in the sector for other relevant advice such as tax and legal. There’s a lot of information out there online, but a lot of it isn’t accurate. So your first step should be to get that expert advice from a mortgage broker.
Can I still get a Buy to Let mortgage as a First Time Landlord if I have bad credit?
The answer is maybe – it will depend on what that bad credit is. It will depend on the overall situation you’re in, and how long ago that bad credit was.
The more recent it is, the less likely it becomes. If it’s just a missed credit card payment, you’re more likely to get a mortgage than if you’ve had a bankruptcy. Bad credit is not an exclusionary situation, but criteria is always changing. Speak to someone who can professionally advise you for an accurate answer.
How can I calculate Buy to Let tax?
A few taxes apply to Buy to Let landlords and you need professional advice, because they’re going to be different for every individual.
Your rental income is taxable income, and it sits on top of any earned income. You may have some allowances to reduce the tax liability depending on how you’re financed and what you’re spending on that property. A Buy to Let tax accountant would be able to advise you on that.
Other taxes may well apply, such as capital gains tax on disposal of the property and increased stamp duty on the purchase of the property. Stamp duty is fairly easy to establish through online calculators.
A broker in the Buy to Let sector will usually be able to recommend professionals to help you with Buy to Let tax.
Can you talk me through an example of a successful First Time Landlord case?
A lot of First Time Landlords are individuals who have their own residential property. They might have equity in it that they’re looking to withdraw to invest into a further property.
Alternatively, they may be sitting on savings that haven’t had much interest growth, and they want to make that money work a bit harder for them.
Either way, they would find a property by speaking to estate agents and letting agents about what would be a good rental property and purchase it in the normal way.
Most First Time Landlords are going to be asked more questions than someone with two or three properties and they may well have to provide more information to the lender.
How do lenders assess the affordability of a Buy to Let mortgage for a First Time Landlord?
Every lender will have different calculations. Often, First Time Landlords require a minimum earned income as a backup plan in case the property isn’t tenanted. This doesn’t apply with every lender, but you may need potentially a £25,000 minimum earned income.
Then there is the stress test rental assessment, where the rent needs to cover the mortgage at a set interest rate. Let’s say this is 5.5%, as an example. The rent might need to be 145% of the mortgage payment on interest only at a rate of 5.5%
If the surveyor doesn’t believe the rent would match that, the lender may ask for additional deposit to make the deal work.
Those calculations vary by lender and by product. Sometimes, to make the calculation fit, the options become very narrow. You might need to take a five-year fixed rate to make it work – your mortgage broker would explore the suitability of those products with you.
What are the requirements for a First Time Landlord to secure a Buy to Let mortgage?
The considerations are the same for any mortgage. Your overall credit profile will be considered and will define the search for lenders. Typically lenders are looking for a 25% deposit. Then there are the rental calculations that we’ve just discussed.
Some lenders require that First Time Landlords are an owner-occupier, which means you own the property you live in. Many lenders will also do a sense check on a First Time Landlord application.
For example, let’s say you own a two-bedroom house and have a family, but you’re buying a four bedroom detached as a Buy to Let. There could be significant questions about that, to ensure you’re not buying the property on a Buy to Let with the intention to move into it. That would be committing fraud.
What common mistakes are made by First Time Landlords on a mortgage application?
The first is the movement of money in their bank accounts. If you have your savings in different accounts, leave it where it is. If you’ve moved it, you’re going to have to show the trail and the origin of those funds for money laundering checks.
Another thing is to be very careful when you are transferring money to people you know. Choose a sensible reference for the transaction. Something you may find amusing could cause additional checks to be done on you.
Have your bank statements in good order. Try not to use your overdraft, make sure your credit card payments, car finance and residential mortgage are all paid on time. Of course if there are blips, we can look at that, but it’s easier if there aren’t.
Other key mistakes people make are around the properties they’re choosing. It’s tempting to choose properties you would want to live in or in an area you like – but that doesn’t mean they would be good Buy to Let investments.
Speak to estate agents and letting agents about what would be good properties and what kind of tenants they would attract.
What options are available when purchasing a first time Buy to Let property?
Most Buy to Let lenders will lend to First Time Landlords, but not so many will lend to First Time Buyers. That’s a whole different subject. We’re assuming that you already own a property, in which case you have the same options as anyone else in the Buy to Let market, subject to criteria changes.
However, if you wanted to invest into HMOs as a First Time Landlord, most lenders will expect you to have some experience. But there are options out there and some lenders will consider it. So the options are as wide as the Buy to Let market. Speak to a mortgage broker to get the individual deals and lenders that would suit your scenario.
How can I determine which Buy to Let mortgage is right for me as a First Time Landlord?
This is a conversation you really need to have with your mortgage broker. There are going to be things to consider: especially whether the rental calculation adds up for the product that you’re looking to take.
You then need to look at how long you’re looking to hold this investment property. If you plan to sell it in a couple of years, a five year fixed deal may not be the most appropriate option for you.
If you’re looking at a longer term strategy, a two-year fixed may not be as appropriate for you. All of these things need to be discussed with your mortgage broker. We’ll look at the consequences of your decisions on each product. Then you can get an idea of what’s important and where you want to go.
Do I need to prove my income for a Buy to Let mortgage as a First Time Landlord?
You’ll need to prove your income for all Buy to Let mortgages where the lender requires a minimum income. If there’s no minimum income, your mortgage broker’s compliance is probably still going to want to see proof of any income you’ve got.
Moving forward, things like SA302 forms or tax calculations, as they are now called, are going to be required as you purchase more properties. They show that you’re declaring your Buy to Let income to HMRC.
So you will need to prove what income you have via payslips or tax returns and bank statements. Many lenders want to see an income – from a part time job, from a pension, or from benefits, to fully understand your situation.
Is it recommended to set up a limited company for Buy to Let properties?
I can’t answer whether it is right for any particular individual. What is recommended is to investigate the options with your tax advisors in conjunction with the mortgage broker.
I’d be highly surprised if you find a broker that doesn’t have a connection with a tax expert or financial advisor. The tax advisor needs to see information from the mortgage broker about interest rates and fees available in a personal name vs a limited company.
Then they’ll be able to take the personal income and tax scenario for the applicant and compare it with the tax consequence in a limited company. Then you will have all of the data needed to make your decision.
If you’re only ever going to buy one property, then the tax consequences and fees may well be outstripped one way or the other. But if you plan in the future to grow a portfolio of 10 properties, while the first one isn’t as economical, by the time you get to 10 it could make more sense to have them all in a limited company.
Things have become much more complex with the rental taxation changes. A mortgage broker will not be able to tell you which is the right way to go. But we can tell you what the products are and work in conjunction with your tax advisor to decide the best way forward.
Your property may be repossessed if you do not keep up with your mortgage repayments.
The Financial Conduct Authority does not regulate most Buy to Let Mortgages.
Speak to an expert
Buy to Let First Time Landlord Part 2
Michael Webb returns to talk more about Buy to Let First Time Landlords.
How much deposit will I need for my first Buy to Let property?
Products do drop in and out of the market, but as standard you should be aiming to have a 25% deposit plus any associated costs like legal and stamp duty. There is the potential to find products for a 20% deposit, and historically there have been 15% products available as well. But most First Time Landlords should be aiming for a 25% deposit.
How can I determine how much I can borrow for a Buy to Let mortgage?
This will be based around the rental income you can achieve. Typically we want to reach a 75% loan to value – or whatever the product is dictating.
You need to then look at the rental calculation and the stress testing that lenders are doing, in conjunction with the mortgage broker. There are calculators that you could potentially find online, but the actual borrowing you’re offered will vary lender-to-lender.
The most common calculation can be quite strict, where the rent has to be at least as much as the mortgage at an interest rate of 5.5% interest rate or higher. Commonly lenders want your rent to meet 145% of that figure.
In the last six to eight months things have changed quite significantly and rates started to rise in early 2023. It means those stress tests have become more difficult to meet, and therefore sometimes more deposit is required.
However, lenders have started to recognize this and develop products to allow for it. Some have reduced the interest rate and then used the pay rate – but they have also added a very large arrangement fee to the mortgage to manipulate that rental calculation.
How much stamp duty do First Time Landlords have to pay?
It will depend on the purchase price, and whether you own any other properties. If you’re a First Time Buyer-First Time Landlord, typically you will not pay the 3% surcharge on stamp duty. However, you will also not benefit from any first time buyer incentives.
It’s best to work it out via the stamp duty calculators. These are easy to use – just click whether you are buying an additional property or if it will be your only property. You put the purchase price in and it will work your stamp duty out for you.
Bear in mind that stamp duty legislation is constantly changing. It’s a hot topic for the government at the moment.
What factors determine the interest rate for a Buy to Let mortgage?
First and foremost it’s how competitive the market is. Factors determining rates in the market include how each lender is funded – do they have their own funds, in which case savings rates are a factor, or are they funded on the commercial market and relying on swap rates?
Obviously the Bank of England base rate also has an effect on the market. You need to look at the deals lenders are offering and what Buy to Let structure you’re looking for. Very generally, a Buy to Let mortgage in your own name is likely to be cheaper than one in a limited company name.
Other factors are the individual’s credit file. If you have an immaculate credit file, a really good income and you’re a homeowner, you’re likely to get a better interest rate.
How can I easily compare lenders as a First Time Landlord?
The easiest way is to deal with a mortgage broker. In fact, it’s going to be very difficult for you to compare deals any other way, because a lot of Buy to Let lenders only deal with mortgage brokers. Their deals aren’t necessarily advertised on sourcing sites on the internet.
Lenders also put out exclusive deals via brokers. We need to have very good relationships with the lenders to know that certain products are even there, because they’re not appearing on our search engines.
Are there plenty of mortgage lenders for First Time Landlords?
Yes, the standard Buy to Let market is fairly open, although if you are a First Time Buyer buying to let, that market is much more contracted.
If you’ve never owned any other property and your first ever property is going to be a Buy to Let there are regulations in place. You have to fit not only the lender’s Buy to Let criteria, but also their residential affordability criteria. It’s to make sure you’re not buying something that you couldn’t purchase on a residential basis.
If you’re already a residential homeowner and you’re becoming a First Time Landlord, that market is much bigger. Most lenders will consider lending to you as long as you fit all their criteria.
What is the typical loan term for a Buy to Let mortgage for First Time Landlords?
Most mortgages have a typical term of 25 years. That’s been the UK standard for many years.
But there are things to consider when looking at the term of a Buy to Let mortgage: the age of the applicants; the lender’s maximum age at the end of the mortgage; changes in the future for the borrowers and other things, like how long you intend to keep the property.
We would make recommendations on the most appropriate loan term for anyone looking for a Buy to Let mortgage.
What is the difference between a fixed rate and a variable rate Buy to Let mortgage for a First Time Landlord?
With a fixed rate you know what your mortgage payments will be. Your rate will not change for two, three, five, seven or 10 years – so you are signing up to stability in your mortgage payments.
Typically there will be a penalty to leave that deal early. So if you wanted to go to another lender, sell the property or pay the mortgage off in any way there would be a penalty to do so. That may be between 1% and 5% of your debt.
A variable rate may also carry a penalty – or may not, depending on the product. But that rate will be linked to something. It may be a discount rate, which is pegged lower than that lender’s standard variable rate. If it’s discounted by 2%, for example, if their variable rate is 8%, you will pay 6%.
Your mortgage will track that rate or it may be linked to the Bank of England base rate. Of course, being variable means it can go up or down – and the trend at the moment seems to be up. So you have the risk that your payments could get more expensive, but you also have the possibility that they could get cheaper.
What are some common misconceptions about being a First Time Buy to Let Landlord?
Probably the most common misconception is that it’s very difficult to get into Buy to Let and get your first property. But in fact the most challenging part is acquiring the deposit.
If you are sitting on capital, then it would be fairly easy as long as you have a good credit rating and you’re a homeowner. It’s straightforward to locate a property and get a mortgage.
Your first property is probably more challenging than any others, and you will have to answer more questions from lenders. Properties two, three and four are probably the easiest, then once you get to five and above, the paperwork starts to get a bit more complex. That’s because you’re then classed as a portfolio landlord.
So the main misconception is that it’s difficult, but it’s typically not that challenging. A good mortgage broker would be able to guide you through the process of getting a first time Buy to Let mortgage.
What extra costs should I consider when becoming a First Time Landlord?
So there’s a few things to consider. First and foremost, stamp duty is usually a shock to people. That can be quite a significant chunk of money in addition to your deposit.
There’s likely to be a mortgage broker fee and a survey fee at some level, whether that’s a basic mortgage valuation all the way up to a building survey. Then there are rental costs – letting agent costs and potentially management costs for the property. Obviously there are your legal fees to purchase, too.
These are the main costs to consider. Some of them would be the same as with a residential mortgage – but of course stamp duty is likely to be higher. The legal fees may be slightly higher, particularly if the property is already tenanted.
If you’re buying an HMO (House in Multiple Occupancy), there would be licensing and compliance costs on the property.
Before anyone gets into being a First Time Landlord, I not only recommend speaking to a Buy to Let mortgage broker, but also to a rental agent about the legal compliance requirements to rent a property. That is becoming more and more regulated as time goes on. It’s not as simple as just putting someone in a property nowadays.
Gas safety certificates, electrical certificates and energy ratings are required and there’s other compliance that you need to go through, all of which are additional costs to being a landlord.
Should I get an interest only or repayment mortgage for my first Buy to Let property?
The vast majority of Buy to Let mortgages are on interest only. But that doesn’t mean you shouldn’t have that conversation with your mortgage broker. You need to consider what your goals are for the property.
If you want a property with no mortgage in the future then you need a repayment mortgage or an ability to pay that interest only mortgage off at the end. There will be different strategies and there’s different tax implications to both as well.
You should consider both, although most people do end up on interest only. On interest only you should look at whether overpayments are available with no penalties – again, something to talk to your mortgage broker about.
What documents are required to apply for a Buy to Let mortgage as a First Time Landlord?
These will differ from lender to lender. But most mortgage brokers are going to have a set requirement. You’re going to need proof of your income with three to six months worth of payslips and corresponding bank statements, to show your income and outgoings.
You will also need proof of your deposit. If that’s sourced from savings you’ll need a savings statement, and if there are large transfers into that account you need to evidence the original source of that money. Buy to Let lenders will ask a lot of questions if it doesn’t look like it’s been acquired over a long period of time.
If you’ve been able to save £1,000 a month for the last five years they may only ask for three months of statements, because they can see the regular accrual of that money. But if £10,000 has been transferred in, you need to evidence where that’s come from. People can be rather shocked at the requirements to evidence where their money has come from. Buy to Let mortgage applications are probably the most rigorous on these questions.
Other things you need are proof of ID and proof of address: passport, driving licence, utility bills confirming your address within the last three months. There will also be an electronic check by your mortgage broker, solicitors and the lender – these will appear on your credit file.
If there is adverse credit, you will need to provide your credit file. As things move on and you buy more properties, there might be more documents such as business plans and portfolio spreadsheets.
Are there any tax implications that First Time Landlords need to be aware of?
The rental that you receive is taxable income that sits on top of your earned income. It may push you from one tax bracket to another. Also, the way mortgage payments and interest are dealt with as a cost has changed – and while we can’t get into tax advice on this podcast, you do need to be speaking to a mortgage broker and a tax advisor at the same time. That way you get the right information, relevant to your own individual circumstances.
Your property may be repossessed if you do not keep up with your mortgage repayments.
The Financial Conduct Authority does not regulate most Buy to Let Mortgages.
Speak to an expert
Buy to Let First Time Landlord Part 3
We continue the conversation on Buy to Let First Time Landlords with Michael Webb.
How can I calculate the rental yield of a property?
There are a couple of ways this can be done. The most common is to see what percentage of the property purchase price its annual rental would be. For example, on a £100,000 property you might get £500 a month rent, which is £6,000 a year. That property would yield a 6% return against its purchase price.
Others work it out a different way, based on the return on the capital you actually have to deploy with a mortgage. For example, on that £100,000 property, you might have put in a
£25,000 deposit plus your fees totalling, say, £30,000. Then, perhaps, you make £3,000 a year profit from the rent after your mortgage payment. £3000 is 10% of the £30000 that you have deployed – so you’re getting a 10% return on the capital.
Just to be clear, those numbers don’t relate to any particular deal. I’ve used an easy calculation to show the point that there are two ways you can calculate rental yields.
What are some tips for building a Buy to Let property portfolio?
A very common strategy is to buy a property that needs significant work on it. You may need to consider bridging finance for this, because if it’s not immediately lettable it may be tricky to get a Buy to Let mortgage on it. But there are finance solutions for people doing this.
Then you improve the property. Using simple numbers again, let’s say you buy it for £100,000 and spend £20,000 to improve it. It’s now valued at £160,000. You then mortgage it at 75% of that £160,000 valuation and take your £20,000 back out.
Then you go and buy another property and do the same again. That’s a very common way to build a portfolio: buy-refurb-rent-refinance. You do need to be able to source the properties that need work. You also need to be able to get the finance needed to use building contractors – or do the work yourself. We’ve worked with clients that have built very successful property portfolios that way.
Other people may consider taking a property and converting it into an HMO, to create more income than they would get from a single family. Perhaps a house would let to a family at £1,200 a month, but it’s got four or five bedrooms. You could get £400 a month per room – so if it has five bedrooms, you could get £2,000 a month instead of £1,200. That way you can accrue capital to put down more deposits in the future.
If you’re sitting on a lot of capital to start with, you need to weigh up whether Buy to Let is a good investment against what you can get on your savings. We’re still finding that people are putting money into property as a long-term investment, both for capital growth and income. You may well be able to use your money to buy multiple properties.
Another common strategy is for people to remortgage their own home to raise money to buy a few Buy to Let properties. In a rising price market, as those values increase they will remortgage them to take more money out, creating more deposits to buy again.
What tips do you have to cut costs associated with Buy to Let properties?
It will really depend on how you’re acquiring them. One of your biggest costs with a Buy to Let property is your tax liability. Anyone looking at getting or growing a portfolio should speak to a tax specialist – we can introduce you to property tax experts if required. Tax is probably the biggest burden of cost for most landlords.
Another way to cut costs is, when you’re looking at lenders, to look for one that has product switches available. If you own Buy to Let properties in limited company structures, it can be quite expensive to remortgage them – you have to consider the remortgage costs, valuation costs, fees on the mortgage and also independent legal advice. There are also the guarantees you give as directors – that is a significant cost.
If you can renegotiate a deal with your existing lender, there are significant costs that can be removed there. Generally, speaking to a mortgage broker and getting an idea of your situation and what the market’s offering will give you the best and most appropriate deals.
Can a guarantor be used for a Buy to Let mortgage?
There are Joint Borrower Sole Proprietor guarantor mortgages out there for residential First Time Buyers – but not on Buy to Let deals.
However, over the years we’ve had individuals who don’t fit the criteria for a Buy to Let mortgage, that have taken a joint mortgage with someone else – a parent, grandparent or a sibling. So a joint mortgage can help you fit the criteria.
That person is named on the mortgage, so they aren’t technically a guarantor. But you’re using their income, their home ownership or whatever criteria needs to be ticked to obtain the mortgage.
You can do it jointly with someone in your family, or we’ve had friends do this together as a stepping stone to building a portfolio. So whilst a true guarantor can’t be used for a Buy to Let mortgage in the current market, there are other solutions.
What are some key tips for managing a Buy to Let investment as a First Time Landlord?
I suggest you look at whether you’re able to manage the property yourself or whether you’re going to engage a management agent to do it for you. Have conversations with management agents around what they would do and what the related costs are, even if you are thinking of doing it yourself.
You need to look at the geography of where you live, where you work and where the Buy to Let property is. It’s been common over the last ten years for people in the South East to invest in the Midlands and the North – that makes managing those properties significantly more difficult. So have an in-depth meeting with several local management agents. Find out what they would do and what they would charge.
The other thing to bear in mind is that letting legislation has changed significantly. People come unstuck when things go wrong. Every landlord eventually has a tenant who doesn’t pay, or a tenant that’s damaging the property. If you need to remove that tenant and you haven’t followed the legislation to the letter, the law is on the tenant’s side much more than the landlord’s.
Make sure you follow the requirements, with the correct timing, and that you have evidence it’s been done the right way. As a first-time landlord, until you’re a bit more experienced, the cost of a letting agent is probably going to be worth it.
Can a First Time Landlord live in their Buy to Let property?
No, not if it’s on a Buy to Let mortgage. However, First Time Landlords may wish to consider a different strategy – it’s something we often talk about with First Time Buyers, particularly those who are single.
If you can afford to buy something that has more bedrooms than you need, legislation allows you to have a lodger. £7,500 in income per year is not taxable. Legislation was brought in a few years ago to encourage people with additional bedrooms to start letting them out, to open up housing solutions – particularly in more expensive areas like London.
So you could rent out one of your rooms in your house and earn £7,500 tax free. That money could pay your own mortgage down more quickly, or accumulate a deposit for a traditional Buy to Let.
Is it possible to have two properties on one mortgage as a First Time Landlord?
There is portfolio lending, but as a First Time Landlord I would assume that if you’re going to buy two properties, you would buy two properties with two mortgages. They might be with the same lender – that’s very common. One company can underwrite the whole transaction because they know you’re buying two.
It’s usually only when portfolios become quite significant that you get loans secured on multiple properties. It’s not usually for a First Time Landlord with two properties. It’s common to go to one lender, but they will give you two different mortgage offers.
Can the equity in another house be used as a First Time Landlord Buy to Let deposit?
We touched on this a little bit earlier. If you have the equity in your own home, for example, you can borrow against that equity. You can remortgage and use that additional money as a deposit for another property.
So in essence you are getting 100% lending, it’s just being done across a residential mortgage and a Buy to Let mortgage. This is very common.
Is it important to have knowledge of the area when investing in a Buy to Let property?
It’s always prudent to have knowledge of the area. Local demographics will affect whether the area you’re buying in is good for rental.
If there’s a high student population, student lets might be a good investment. Is the area more conducive to HMOs than family lets? What kind of rental properties are there – what competition will you have?
A lot of First Time Landlords often buy in an area that they’ve lived in and are still local to – that makes it easier to keep an eye on the property and do any maintenance.
Whether you’re buying your first property or your 100th, do your due diligence on the area. Always view the property and know what you’re getting into. Visit the area at different times of day, as well.
How can I find out about Buy to Let mortgage rates for First Time Landlords?
As we’ve discussed before, the vast majority of Buy to Lets are done via mortgage brokers, as they’re classed as commercial lending. They’re non-regulated, as the property is being bought for business purposes.
So to find about rates available, have an appointment with a mortgage broker that specialises in Buy to Let. Then they can talk you through the things we’ve discussed on this podcast and can give you holistic advice on being a landlord for the first time – along with what the most appropriate deals are going to be.
Is it possible for First Time Landlords to get a holiday let mortgage?
There are products that allow holiday letting. Some lenders require that you are an existing landlord, while some will accept First Time Landlords.
Holiday lets have different taxation legislation and they require a lot more hands-on management: you’ve got tenants in and out regularly. Usually we can find solutions within the marketplace to suit you.
Is it possible for First Time Landlords to get an HMO mortgage?
Yes, this is a question we get a lot, as landlords look to try and maximise the return on their investments. HMO has been a very popular way to do this over the years.
There is the possibility for First Time Landlords to go straight into an HMO, but the vast majority of lenders want you to have at least a year’s experience. Some want you to have had two or three years being a landlord of a single let property before they will consider an HMO mortgage.
The reason for this is that HMO legislation is much stronger and there’s more of it. The continuous change of tenancy is also much more significant than with a single let family property.
A First Time Landlord should perhaps take a step back and have a look at whether it’s the right thing for them. Can you commit to that kind of level of property management without any experience of being a landlord? That said, most situations – including this one – can be resolved within the marketplace.
Can I use my pension to invest in Buy to Let properties as a First Time Landlord?
Yes – this has become quite popular since people have been able to draw all of their pension down in cash. You always could take the 25% lump sum tax-free, but now you can take all of your pension value – although you will be taxed on an element of it at the relevant rate.
You can use that as your deposit to invest into a Buy to Let property. We can’t advise whether it’s appropriate for you to do that – that falls under pension advice. You should speak to your pension advisor to see whether that’s an appropriate action.
What type of property is the best investment for a First Time Landlord?
That is the million dollar question. The area and its demographics will dictate the best type of investment. You need to look at the types of tenants you’re likely to attract – is it going to be DSS tenants, local people or foreign students? Is it going to be working professionals or families? Where are the gaps in the market?
Find out from agents what they could rent tomorrow if they had 10 of them, and what has sat there for months with no tenants being interested. The best thing to do is research the area, speak to agents and see what the market’s demanding where you’re looking to buy.
How does buying a Buy to Let property in cash differ from getting a mortgage?
If you’re buying for cash, you don’t need to go through a mortgage application, so your conveyancing would be much quicker and you’d be able to complete on the property faster.
Mortgage companies often have questions with regards the legal information that the solicitor obtains.
Another thing to bear in mind is taxation and how that would work. You’d need to speak to tax advisors on that. You also need to consider whether it’s appropriate to put all of your cash into one property, or if it’s better to buy multiple properties and spread your risk. They’re things that a mortgage broker can discuss with you, alongside your tax advisor.
Is there an age limit for First Time Landlord Buy To Let mortgages?
There are age limits for Buy to Let mortgages with most lenders, whether you’re a First Time Landlord or not. Lenders usually require you to be at least 21 to be considered, and with some that threshold is as high as 25.
Other requirements can include minimum income. I’m sure there are solutions for someone over the age of 18 within the marketplace but 21 is the most common threshold for Buy to Let mortgages.
How can a broker help me with my Buy to Let mortgage application?
The vast majority of Buy to Let mortgages are done via mortgage brokers. The reason is regulation – lenders in that marketplace don’t want to accept applications direct. Your marketplace is very narrow if you’re not using a mortgage broker.
I would hope this podcast has outlined how a mortgage broker can help you, especially if they have knowledge of the Buy to Let market. Of course they’ll help you get the most appropriate mortgage for your situation. But if they’re dealing with Buy to Let on a regular basis, that holistic information they will have is invaluable, particularly to First Time Landlords.
Your property may be repossessed if you do not keep up with your mortgage repayments.
The Financial Conduct Authority does not regulate most Buy to Let Mortgages.