Are you thinking of buying a rental property in the UK before you buy your own home? Many people wonder whether it’s possible to get a Buy To Let mortgage as a First Time Buyer. The good news is that it is possible with the right lender as long as you satisfy their lending criteria.
With rental yields at an all-time high in the UK and predicted to continue rising, investing in rental property can be a great way to grow wealth over the long term. Although it’s more common to purchase a Buy To Let property after owning your own home, there are certain situations where it may be a valid investment strategy to do it the other way around, which we’ll discuss in this guide.
One of the most important elements of being a successful landlord is to get the right Buy To Let mortgage advice, so be sure to speak to one of our expert mortgage advisors to explore your options. Another element is to find the right Buy To Let property, and for this, we recommend reading our guide, ‘What to Look for When Buying a Buy To Let Property’.
If you’re a First Time Buyer hoping to get a Buy To Let mortgage, please read on to find out all you need to know about investing in rental property before owning your own home.
What is a Buy To Let Mortgage?
A Buy To Let mortgage is a specific type of mortgage designed for people who want to purchase a property to rent out to tenants. Lenders view rental properties differently from residential properties in terms of risk, which is why landlords have to apply for a dedicated Buy To Let mortgage if they need to raise a loan for this purpose. It’s also the reason that interest rates tend to be slightly higher compared to residential mortgages.
While similar to standard residential mortgages in some aspects, there are key differences to be aware of, such as the minimum age you need to be, the minimum deposit you’ll need, the minimum credit score you’ll need to have, and how the expected rental income compares to the monthly mortgage payments. We’ll discuss these points in more detail a bit later.
Although repayment Buy To Let mortgages are available, it’s more common for landlords to take out interest-only Buy To Let mortgages. This is because the lower monthly payments are better suited to most property investors.
To find out more about Buy To Let mortgages, please read our detailed guide, ‘How Do Buy To Let Mortgages Work?’
Should I Get a Buy To Let Property as a First Time Buyer?
If you know where you’ll be based for the foreseeable future, you have the money to buy in that area, and you don’t have particularly strong aspirations to build a rental property portfolio, you may want to consider buying your own home first.
However, buying a Buy To Let property as a First Time Buyer isn’t unheard of and it can offer some advantages. Although there are no guarantees, property is considered to be a relatively safe investment and values tend to go up over time, so getting on the property ladder in any form can be financially beneficial over the long term. However, you may not be able to afford to buy where you want to live, or you may want to reap the potential benefits of being on the property ladder without being tied down to a particular location. In these instances, you could consider purchasing a Buy To Let property in a location you can afford.
Depending on how much money you put into the property and what mortgage rates you qualify for, you may be able to generate an additional income to help fund your lifestyle or other investments, whilst potentially making further profits from any rise in property value over time.
Despite these benefits, there are also potential pitfalls to be aware of. If you’re a First Time Buyer thinking about investing in a rental property, our expert mortgage advisors can help guide you down the right path and make the process easier for you. We also have a lettings team that can help find the right tenants, collect rental income and fully manage your property.
How Do I Get a Buy To Let Mortgage as a First Time Buyer in the UK?
As someone who has never owned a home, kept up with a mortgage, or managed a rental property before, you may be considered a higher risk to lenders than an experienced landlord who owns their own home. This doesn’t necessarily mean you won’t be able to get a Buy To Let mortgage, but it does mean your options may be limited and you’ll have stricter criteria to meet. Let’s have a look at some of the key criteria so you can get prepared.
Minimum Age to Get a Buy To Let Mortgage as a First Time Buyer
The minimum age most lenders accept for a Buy To Let mortgage application is 21, regardless of whether it’s your first mortgage or not. The reason this is slightly older than the minimum age for most residential mortgages, which is 18, is that lenders want to see a solid credit history and proven income and affordability built up over at least 3 years.
Minimum Deposit to Get a Buy To Let Mortgage as a First Time Buyer
Saving a large enough deposit for a Buy To Let mortgage could be one of your greatest challenges. Lenders typically want at least a 20-25% deposit for Buy To Let mortgages, but as a First Time Buyer, this could be as high as 40-60%. On the positive side though, if you can save up a large deposit you’ll typically get better mortgage rates, pay less interest, and generate more profit from your investment.
Minimum Credit Score to Get a Buy To Let Mortgage as a First Time Buyer
When it comes to Buy To Let mortgages, lenders usually want to see a good credit history. If you’re a First Time Buyer looking for a Buy To Let mortgage, having good credit is even more important. It may not be impossible to get a Buy To Let mortgage with bad credit, depending on what the issues were and when they occurred, but it’ll certainly limit your options. To learn more about credit scores and how to check them, please read our guide, ‘How Do I Check My Credit Score?’.
Minimum Rental Income to Get a Buy To Let Mortgage as a First Time Buyer
Another difference between residential and Buy To Let mortgage applications is that lenders usually include the expected rental income in their calculations for the latter. They will typically want to see a rental income of at least 125% of the monthly mortgage payments, but if you’re a First Time Buyer, this may be closer to 145%. Lenders will also stress test your affordability at a higher interest rate to ensure you’ll be able to afford the payments if rates were to rise. As of the time of writing, most lenders are stress testing at around 7-8%. To learn more about rental income and yield, please read our guide, ‘Rental Yield Explained – How Much Can You Make From a Buy To Let?’.
What Other Fees and Costs Will I Need to Consider?
Aside from the property purchase and your Buy To Let mortgage costs, there are a few other potential fees and costs to be aware of. Let’s take a look at these below.
- Stamp Duty. This is a tax that the buyer has to pay when purchasing a property. There are certain tax breaks for First Time Buyers purchasing a primary residence, but these won’t apply if you’re buying a rental property. However, as a First Time Buyer, you won’t have to pay the second property surcharge that most landlords have to pay.
- Survey. A survey is a professional inspection of the property to assess its condition and identify any issues you should be aware of before purchasing. There are different types of surveys to choose from – to find out more about your options, please read our guide, ‘What is a Survey When Buying a House and Which Survey Do I Need?’
- Solicitor/Conveyancer Fees.You’ll need a solicitor to handle all the legal aspects of buying a property, including the completion and transfer of contracts and money.
- Insurance. Having buildings insurance is usually a requirement by most Buy To Let mortgage lenders. Other types of insurance, such as landlords insurance, can offer additional protection. We provide a FREE Insurance Service to help you. You can chat to our insurance team here to find out more.
Should I Use a Buy To Let Mortgage Broker?
Although the exact figure varies, most surveys suggest that between 70-90% of First Time Buyers use a mortgage broker. When the majority of people do something, there’s usually a good reason for it! Using a mortgage broker like Michael Usher Mortgage Services means you’ll get access to a wide range of mortgage deals from across the market so you can see what rates are available to you. This includes high street lenders through to specialist lenders and exclusive deals. We also look at your financial situation and work out how much you could borrow and which deals you’ll be accepted for. This is important, because being rejected by a lender can damage your credit score, making it even harder to get a mortgage next time around. Lastly, we offer advice as to which deal is most suitable for your situation and needs, and then apply on your behalf to make the process easy. We also have dedicated paraplanners who liaise with your estate agent, lender and solicitor to ensure the purchase goes as smoothly as possible.
Another reason landlords come to us is because we have dedicated insurance and property sales & lettings teams ready to help you with other aspects of your property journey.
Should I Use a Lettings Agent?
Running a rental property is a big commitment. You’ll need to find and vet the right tenants, organise check-in, check-out and inventories, manage deposits, collect rent, organise maintenance, stay up-to-date with regulations, and communicate with tenants. Unless you have the free time, flexibility, and appetite for such a commitment, we recommend using a lettings agent.
Our property team at Michael Usher Sales & Lettings have different tiers ranging from administration and setup through to fully managing your property. We also have a network of high-quality, good-value tradesmen who can look after your property without breaking the bank. You can find out more about our lettings services here.
The Bottom Line
Although it’s more common to invest in rental property after owning your own home, it’s not unheard of to do it the other way around. If you want to get on the property ladder but you either can’t afford to buy where you live or you don’t want to be fixed to a location, purchasing a Buy To Let property somewhere you can afford may be an option. Getting a Buy To Let mortgage can be challenging as a First Time Buyer, but not impossible. Book a chat with one of our expert Buy To Let mortgage brokers and we’ll search a wide range of lenders, including specialist lenders and exclusive deals, to see what rates are available to you.
At Michael Usher Mortgage Services, we’ve been helping landlords throughout Surrey, Hampshire and Berkshire for over 30 years! We’re not affiliated with any particular lender, so we can access a comprehensive range of Buy To Let mortgages from across the market to find a deal that suits your needs. We’ll guide you through the process and liaise with your lender, estate agent and solicitor to ensure your application goes as smoothly as possible, and we can also help to protect your mortgage with our FREE Insurance Service.
Talk to one of our friendly mortgage advisors for free to get going quickly. Our head office is on Frimley High Street, but we can also help you remotely via phone or video call if you’d prefer. We look forward to chatting with you!
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Your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice. The precise amount will depend on your circumstances but will be agreed with you before proceeding.
