Buy To Let Mortgage For First Time Buyer

A buy-to-let mortgage allows you to invest in a property that can be let out for earning rental income.

This means it is different from a standard residential mortgage that is taken for purchasing a property you plan to live in.

While a buy-to-let mortgage allows you to earn passive income potentially, it involves more risk than residential mortgages.

That’s why first-time buyers are often confused about whether such a mortgage is a good investment.

This guide aims to answer that question and explain all about buy-to-let mortgages and their suitability for first-time buyers.

Buy To Let Mortgage for First Time Buyer

First-time buyers are those who do not own any property, not even own their own residential home.

They may be looking to invest in a property to get rental income, as due to the circumstances in the buyer’s life at that time, this makes sense with the deposit rather than buying a home as a residential dwelling.   

A buy-to-let mortgage is one of the best ways to achieve such a goal. That said, getting such a mortgage may not be very easy. 

The primary reason is that most lenders prefer lending to people who already have experience owning and holding a property due to the higher risk involved with buy to let mortgages.

That is also why the number of lenders willing to provide such a loan to first-time buyers is quite limited. 

In most cases, they are only willing to provide a buy-to-let mortgage to first-time buyers under specific conditions.

This means that the eligibility requirements are very strict, and proper financial planning is essential for getting such a loan. 

Eligibility Criteria for Buy-To-Let Mortgages for First-Time Buyers

While various lenders can have different eligibility requirements, most lenders willing to provide a buy to let mortgage for first time buyer have the following criteria:

1. Deposit

The deposit requirements for buy-to-let mortgages are higher than those for residential ones, especially for first-time buyers.

Generally, you need to deposit at least 25% of the property value, but this requirement can go up to 40%, depending on the lender. 

2. Rental Income 

Before providing a buy-to-let mortgage, a lender needs to be assured that the rental income from the property can cover between 125% and 145% of the monthly repayments usually.

For first-time buyers, this is likely to be closer to 145%.

3. Income And Employment 

The income and employment requirements may not be as applicable for experienced landlords but are extremely important for first-time buyers.

This is because lenders want to be sure that you can repay the loan even if there is no rental income from the property.

Additionally, lenders always want to guard against backdoor residential, meeting income and employment criteria as if it was a residential guards against this.  

4. Age

Buy-to-let mortgages are only available for people having a minimum age of 21 to 25 years and a maximum age of 75 years in most cases. 

5. Credit History

As with any other loan, a good credit history is crucial if you want to get a buy-to-let mortgage as a first-time buyer. 

Types Of Buy To Let Mortgages for First Time Buyers

Most borrowers opt for interest-only buy-to-let mortgages instead of repayment mortgages, as the payments for the former are much lower.

This is because you only need to pay the interest on the loan, and the principal amount needs to be paid at the end of the loan period.

In the case of a repayment mortgage, you will need to repay the loan along with the interest, putting more strain and requirement on first-time buyers achieved rental yields. 

While both types of buy-to-let mortgages are available for first-time buyers, which one you should go with will depend on personal circumstances and long-term goals.  

Can You Use A Guarantor for A Buy-To-Let Mortgage As A First-Time Buyer?

Borrowers generally use a guarantor for residential mortgages rather than buy-to-let ones.

Using a guarantor for a buy-to-let mortgage may not be beneficial since your eligibility mostly depends on the rental income expected from the property.

However, some lenders may allow using the services of a guarantor (although very rare), usually if your application does not meet the eligibility criteria. But this is not possible in all instances, which is why you may need an alternative solution.

This can involve taking a joint borrower sole proprietor mortgage while listing the property owner willing to act as a guarantor as an applicant.

Doing so can make lenders more willing to provide a loan even if you are a first-time buyer. In all honesty this rule applies more to residential mortgages than it does buy to lets. 

Documents Required for A First Time Buyer Buy To Let Mortgage

Since lenders assume more risk when they offer a buy-to-let mortgage to a first-time buyer, they will scrutinise the documents provided more thoroughly before accepting your application in most cases.

So, you should strive to provide as much evidence/documentation as possible to support the application. 

In most cases, the following documents will be required by lenders:

1. Accounts Or Wage Slips

You need to provide proof of employment and adequate income when applying for a buy-to-let mortgage.

For self-employed people, accounts or SA302 tax calculations with the corresponding tax year overviews can serve as evidence, while in other cases, wage slips for the same period will do. 

2. Employment Contract

An employment contract is required if you’ve just started a new job. 

3. Address History

Various documents such as bank statements and utility bills can be provided as proof of address. 

4. Landlord Reference

A landlord reference will also be required if you’ve resided in any rental accommodation within the last 12 months usually. 

5. Rental Evaluation

To provide the lender with evidence of the expected rental income, you will need to get the property evaluated by a qualified surveyor or ARLA-qualified letting agent.

Getting A Buy-To-Let Mortgage As A First Time Buyer With Bad Credit 

If your credit history is not good, getting a buy-to-let mortgage can be extremely difficult, though it may still be possible.

You will need to look for specialist lenders and will most likely need to put down a deposit much higher than 25%. 

The fees for the mortgage will be higher in such instances. To make things easier, you should first try to improve your credit rating.

This will involve paying off existing debts where possible, not missing out on payments, and avoiding taking new loans.

Sometimes, it may be possible to get a buy-to-let mortgage without the need for a specialist lender, such as when credit problems are caused due to missed payments.

On the other hand, if such issues are caused by bankruptcy, the chances of getting such a mortgage are extremely slim.   

Whether your application is accepted will ultimately depend on the lender, so finding a suitable lender is vital. Doing so will also prevent your credit score from worsening further. 

Stamp Duty Requirements For A Buy To Let Mortgage First Time Buyer

There is a 3% surcharge that needs to be paid if you own a second property in most cases.

However, this does not apply to first-time buyers, who do not need to pay stamp duty if the property value does not exceed £425,000. 

This is applicable in both cases, whether the property is being used for residential purposes or let out for rental income.

However, if the value of the property lies between £425,000 and £625,000, the surcharge rate will be 5%. And standard rates will be applicable for properties with a higher value. 

Always speak to a suitably qualified conveyancing solicitor if the first property you buy as a first-time buyer is a rental property. 

FAQs

1. Can first-time buyers use the Help To Buy Scheme Of The Government for buy-to-let mortgages?

The Help To Buy Scheme is not available for people looking to purchase property for investment purposes. 

2. Can you live in the property purchased as a first-time buyer through a buy-to-let mortgage? 

Living in any property purchased through a buy-to-let mortgage is not allowed since this mortgage is specially designed to allow you to earn rental income.  

3. Is it possible to use gifted deposits to get a buy-to-let mortgage as a first-time buyer?

Using gifted deposits to get a buy-to-let mortgage is possible for first-time buyers, provided the gifted deposit meets the lender’s eligibility criteria. 

4. How much can first-time buyers borrow for a buy-to-let mortgage?

The rental income expected from the property will determine how much you can borrow as a first-time buyer for a buy-to-let mortgage. 

Conclusion

Investing in a house through a buy-to-let mortgage can be a great way for first-time buyers to get an idea of how property markets function.

That being said, investing in a property and letting it out for rent can be challenging if you have no prior experience.

From getting your mortgage application accepted to performing various duties as a landlord after letting out the house, every aspect will require a great deal of effort.  

So, before investing in a buy-to-let property, consult a mortgage broker who can help you make the right decision.

**A buy to let mortgage will be secured against your property.

Some types of buy to let mortgages are not regulated by the Financial Conduct Authority.

All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.