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.
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 possibly a maximum age (usually 75/80) although this may be less restricted than residential mortgages. 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. Be aware though that very few 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 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 buy-to-let mortgage, which may come with additional affordability checks.
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 an 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 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 ’equity’ 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 buy-to-let 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.
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 buy-to-let 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.
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 buy-to-let 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.
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.
If you wish to become a buy-to-let landlord, or if you wish to change your mortgage to buy-to-let, it's well worth taking the time to seek further advice. Our preferred mortgage advisers are always on hand to help.
Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.