Mortgages for First Time Landlords

First-time landlord mortgages explained

The buy-to-let mortgages above are those that are available to first-time landlords and offer the best interest rates. They are sorted by interest rate, with the best first-time buyer buy-to-let mortgage rate at the top. They can also be ordered by mortgage type, period and maximum loan-to-value (LTV), for those who already know what kind of mortgage they want or what deposit they are willing to pay.

On this page:

1. Should I become a landlord?
• Risks
• Rewards
2. Can I get a buy-to-let mortgage?
3. How much can I borrow with a buy-to-let mortgage?
4. What types of property make it harder to secure a buy-to-let mortgage?
5. Changing your mortgage to a buy-to-let mortgage

Should I become a landlord?

You might have come to this page because you're thinking about getting a first-time landlord mortgage. Maybe you've already got everything sorted and you're just looking to see what the best buy-to-let mortgage for a first-time buyer might be. If you're not sure about becoming a landlord, however, here's an overview of the risks and rewards to help you decide whether it's for you.

Risks:

• BTL is subject to several taxes, with recent regulatory changes making it more expensive to be a landlord. Read our guide on the subject to find out more.


• While you'll want to do everything you can to keep your (good) tenants in the property, it's sometimes unavoidable to have your property stand empty for some time. You can of course minimise the cost associated with this risk by taking out landlords insurance.


• There are lots of different expenses involved in becoming a landlord. You'll likely need to do some renovating before your first tenants can move in, not to mention fire safety precautions and all other legal requirements related to letting, such as annual gas safety checks. Don't forget that there will be unexpected expenses during the term of the tenancy as well, with sudden repairs and such potentially costing a pretty penny.


• Buy-to-let (BTL) is a long-term investment - yes, you will get rent every month, which should make you a profit, but if you want to take your money back out, to pay for retirement for instance, this will involve a lot of hassle. And if house prices drop by too much, you may not even be able to remortgage, let alone sell the property at a profit.


• Potentially worse than no tenants could be a situation where you're dealing with bad tenants who trash the property, refuse to pay rent, won't move out, or all of the above. These legal issues could be costly in terms of both time and effort. You could minimise the chances of this happening by not renting to students (a high-risk, but also high-reward group) or going through a trustworthy rental agency.


• If you don't want to involve a rental agency, being a landlord could end up taking a lot of your time, as you'd have to come by to do any repairs and checks, or arrange them with contractors, and generally keep an eye on things. So, before you dive in, ask yourself: how much involvement do I want to have?

Rewards:

• Rental yields should give you a decent monthly income, as strict affordability rules mean that you shouldn't be able to get a mortgage if you're not expected to make a profit. Rent must be at least 125% of your mortgage repayments, or 145% if you are a higher or additional rate tax payer. This money could be a great addition to your regular or retirement income and give you a cushion in case your regular income falls away unexpectedly.


• The bright side of BTL being a long-term investment is that it can give you long-term security; you should know exactly how much you're getting every month, which would allow you to plan accordingly.


• If you are a basic rate taxpayer or a limited company, you should be able to get some tax relief for your buy-to-let property. Read more about this on the Government's website, as well as some handy tax exemptions that all landlords could be able to profit from. Note that buy-to-let taxation may change at any time, so this information may be outdated.

Can I get a buy-to-let mortgage?

The most common eligibility criteria for being able to get a buy-to-let mortgage, aside from the required deposit, are a certain minimum level of income and a maximum age (usually 75/80). Not all mortgages will require these criteria. However, there will be certain requirements such as a deposit that is at least 25% or even 40% of the value of the home - much higher than regular first-time buyer deposits - and the rental cover that could restrict your options.

Additionally, the lender may require you to be able to withstand certain mortgage rate rises (as much as 5.5%) to make sure you won't have to default on the deal. They might even ask you to show that you've been able to pay your personal mortgage off without problem for the last year or so.

At this point, you may be asking yourself: can first-time buyers get a buy-to-let mortgage? The answer is yes, if they find a mortgage that is specifically available to first-time buyers and meet the lender's criteria. Beware, though, that not a lot of buy-to-let mortgages will be available to non-homeowners and that mortgage lenders will likely require a large deposit and substantial, steady income.

Note that you cannot get a buy-to-let mortgage for a home you are or are planning to live in (which would not be a financially savvy move, as regular mortgage rates tend to be lower than buy-to-let rates). If you plan to rent to family members you would need a regulated BTL mortgage, which may come with additional affordability checks.

How much can I borrow with a buy-to-let mortgage?

As previously mentioned, as a first-time landlord, you will usually need a deposit that is at least 25% of the value of the property you are looking to buy. This translates to a loan-to-value (LTV) of 75% or less. How much you will be able to borrow, i.e. which LTV you’d be eligible for, will naturally depend on your personal circumstances.

If you do get a loan that has an LTV of more than 65%, it is likely that you will need to show that you can afford the mortgage if rates go up by a certain amount and/or have a higher rental income percentage (so more likely 145% than 125%). This is worth taking into account when you're considering how big of a deposit you're willing to put up, or what kind of property you're looking to buy.

Another thing to consider, in relation to how much of a deposit you're willing to invest, is the kind of mortgage. Unlike residential mortgages, which are mainly repayment-based, there are a reasonable amount of interest-only buy-to-let mortgages available. If you get an interest-only mortgage, you may have lower monthly repayments, but your 'deposit' will only grow if house prices grow. If you'd like to remortgage at a later date or increase your equity in the property for other reasons, a repayment mortgage might be a better idea. Consider talking to an adviser to see what type of deposit and BTL deal is right for you. Generally speaking, landlords looking to invest for regular income tend to opt for interest only mortgages, whereas those looking to invest for capital (to be realised at the point of sale) tend to opt for repayment mortgages.

What types of property make it harder to secure a buy-to-let mortgage?

You are in charge of finding a property that will attract not only the type of tenant that you want, but also a continual stream of them. That said, your lender may also have some thoughts. For instance, it would probably be harder to secure a BTL mortgage if you are planning to buy a property that is in the middle of nowhere or will require a lot of renovating. Make sure you pick a property that is well-located and is either cheap or well-kept before you complete a mortgage application, to maximise your chances of securing a loan.

Changing your mortgage to a buy-to-let mortgage

Buy-to-let, for some, is something that's fallen into rather than planned. If you've decided to move in with your partner or have to move away for work, you may be considering keeping your home and getting tenants to move in.

But how exactly do you change your existing mortgage into a buy-to-let? The first thing we should say is: Don't move tenants in without formal permission from your mortgage lender.

As a first step, it is actually worth talking to your current mortgage lender to see if they'd be willing to change your mortgage deal into a BTL mortgage - giving you a consent to let. You would then not be able to move your mortgage with you to your new residential property, however, so consider your current deal carefully to see how you can best take advantage of it.

If your current lender doesn't offer you a good enough deal, look at the table above to see if there's an appealing product there for you. Once you've arranged the buy-to-let mortgage, you can either get a letting agency to do all the heavy lifting for you, or start renovating to make the property tenant-ready yourself. Don't forget that you'll need to make your own tenancy agreement - the Government offers some guidance for this - and ensure the legality of everything. You'll want to make sure both you and your tenant(s) feel safe and legally protected.

There's a lot involved in becoming a landlord, which can't all be covered here, so your best bet would be to seek professional, independent advice before you take your first step onto that other property ladder.

What next?

Five steps to becoming a buy-to-let landlord

Guide to BTL mortgages

Use our Buy to Let Mortgage Search to get a more personalised list of available mortgages