First-Time Buyer Buy-to-Let Mortgages
If you are looking to purchase a buy-to-let property as a first-time buyer (or even as someone who has previously owned a home but has not for some time) you will likely find it quite difficult to raise finance.
The reason for this is the issue that most buy-to-let mortgages are not regulated by the FCA.
As maximum loans on buy-to-let mortgages are usually based on the rental income as opposed to the applicant’s income, this made them a soft target for people looking to circumvent maximum borrowing rules on normal "owner-occupied" mortgages.
As a result, the regulator has put significant pressure on lenders to ensure that they are not being targeted by this type of fraud.
So in essence, it’s quite difficult to get a first-time buyer buy-to-let mortgage nowadays; but not impossible and we do have access to lenders who can help.
What you need is assistance from a suitable mortgage advisor like ourselves, who can offer whole of market advice. We will help you understand quickly whether your proposed scenario is likely to be acceptable and find those lenders who can consider it as most will not offer these mortgages.
Firstly though, here is some guidance that should help you work out whether your situation is suitable.
First-time buyer buy-to-let; Typical requirements
You will need some form of income
And this likely needs to be over £18-20k per annum. Although each case is different if you earn less you should seek advice from us before investing too much time in researching properties.
The maximum loan is likely to be based on your income
And hence is likely to be no more than on a residential mortgage for you to live in, but a buy-to-let product will usually be more expensive.
So there’s not going to be much point trying to go down this route if you are struggling to borrow enough on a residential mortgage.
If you are concerned that you might not be able to borrow enough we may be able to find lenders who can offer more than you expect on a normal residential mortgage.
The deposit required will be higher
Buy-to-let mortgages usually require larger deposits typically in the region of 25% or more.
Although this may reduce in the future, it’s still likely that the mortgage rate would be more expensive than a comparable residential deal.
It’s likely there will be early repayment charges
Another reason some might consider first-time buyer to let mortgages is to buy a property to fix up and sell on.
If that’s your intention, then not only does the property need to be lettable as it is (see below) but bear in mind that early repayment charges will likely be for 1-5% of the mortgage balance (or more) and that most deals will tie you in this way for a couple of years.
The tenant cannot usually be a relative
Most lenders that can consider first-time buyer buy-to-let’s will stipulate that the tenant cannot be a relative (direct family members like brothers, sisters, children or parents).
There are a few reasons for this but one of the important factors would be the potential that the property would be let for a nominal rent rather than the market rent, in which case the buyer would be exposed to more risk.
The situation needs to be plausible
First-time buyer buy-to-let applications have historically been subject to more abuse so even though the opportunity for people to use nefariously has largely been eliminated they still attract more scrutiny from lenders so the scenario you're presenting must be acceptable.
So, an advisor like ourselves will help to ensure early on that you are not wasting time, and to make sure that lenders will be open to the proposed setup.
For example, If you live with your parents in Nottingham, work in London and are buying a one bed flat in London, it does kind of look like you might be intending to live in the property.
If there was a plausible reason for buying a buy to let a long way from where you live, then it may still be suitable.
Another type of scenario that will look unusual is buying property adjacent to your parent’s home, where you reside. In this case, it may seem if they own their property that there is an intention to convert them all into one.
Because of the issues of fraud with first-time buyer buy-to-let mortgages, lenders will look more closely at the transaction.
An example that would be less concerning is someone in the armed forces whose main residence is provided at little or no cost, who is keen to invest to add to their pension provisions.
If you are buying a buy to let because you live with a partner who is a homeowner and want to invest in property, or have married but the current residential property has a mortgage with repayment penalties preventing you from being added as an owner then this may not be so much of a problem.
In this instance, it’s clear that there is a valid reason for starting with a buy to let, but again care needs to be taken and you should seek advice
You also need to ensure you will not be subject to the new higher rate of stamp duty if you are married or factor this into your purchase costs.
Buy-to-let mortgages require a property to be in a lettable condition
This means much better condition than you may be able to get away with on a normal residential mortgage.
If you are struggling to afford something, you will find it more difficult to get a buy-to-let mortgage, as issues like damp, unsuitable electrics, historic building work without full building control approval, or even just a very tired and low-quality presentation of the property are all more likely to cause the mortgage to be declined on buy to let.
So it’s certainly possible to get buy-to-let mortgages for first-time buyers, but it isn’t a realistic way to get around maximum borrowing rules.
If you need help finding a suitable mortgage, call us or complete our enquiry form to get expert independent mortgage advice.