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Buy to Let First Time Landlords

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Buy to Let Mortgages

Buy to Let First Time Landlords

Looking at Buy to Let mortgages for first time landlords with Jo Evans.

What are the requirements for a first time landlord to secure a Buy to Let mortgage?

There isn’t really much difference whether you’re a first time or second time landlord.

Mortgages are generally based on the property value, the mortgage amount and the potential rental income for the property itself.

It’s essential to know that information right at the start – although obviously some of it may change. You also need to know as a first time landlord that you’re prepared to cover any mortgage payments, if there’s any period where you’ve got no tenants in the property.

Hopefully these would be very few and far between, but that’s one of the things to think about. We would also look at your potential returns for the future, whether you’re looking at
making a return quickly, or whether it’s a long-term investment.

How much deposit is usually required for a Buy to Let mortgage?

This can vary down with lenders’ requirements and the rental income versus the mortgage amount, but usually you need 20% to 25% deposit. A few lenders may accept a 15% deposit.

Are there any specific mortgage options for first time landlords?

Occasionally some lenders will have specialist offers for first time landlords, but on the whole, no. Certain lenders prefer landlords to have had some experience – so they are second or third time landlords.

But on the whole you are treated the same regardless of how many times you’ve bought a Buy to Let property.

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How do lenders assess the affordability of a Buy to Let mortgage for a first time landlord?

It’s based on the rental income of the property and how much the mortgage is. As a rule the rental income should be 25% to 30% higher than the mortgage payments – but it also depends on the tax status of the applicant.

Whether you’re a basic rate taxpayer or a high rate taxpayer can impact that potential yield and return. That can make a difference, and it’s always a good idea to look at the rental income and the mortgage payments.

What are the common mistakes made by first time landlords when applying for a Buy to Let mortgage?

It’s not so much when applying for a Buy to Let mortgage, it’s actually not doing enough research at the beginning when you’re looking into the property and the costs.

You’ve got to factor in things like management fees, insurance and what kind of tenant you want in the property. Do you just want one person and one tenancy agreement, or a House of Multiple Occupation (HMO)?

Do that research and look at the potential before making any decisions. Also, weigh up the fees related to the mortgage and decide whether you’re aiming for short term gains or a long term investment.

Are there any tax implications that first time landlords need to be aware of?

With regards to tax, I would recommend everyone seeks specialist tax advice from a tax advisor or an accountant. There’s no hard and fast rule here. Again, it’s individual and as brokers, we’re not tax specialists, so we can’t advise you on that.

What factors determine the interest rates for a Buy to Let mortgage?

This is not specifically for a Buy to Let mortgage. All lenders look at the markets at the time to make sure that their rates are attractive to potential clients, but are also cost effective and profitable for them. They’ll weigh everything up, looking at how the markets are and try to predict the future. At the moment, that’s quite hard.

There are so many different factors in the world economy, the cost of living and everything we’ve gone through in the last four or five years. It’s been a challenging time [podcast recorded in July 2024].

But that’s generally what they look at, together with the Loan to Value ratio. The bigger the deposit, the lower the interest rates.

What’s the difference between a fixed rate and a variable rate Buy to Let mortgage for a first time landlord?
Fixed rates and variable rates work the same regardless of the type of mortgage.

A fixed rate gives you peace of mind – you know exactly what you’re going to be paying and what that mortgage is going to cost you for two or five years. There are sometimes options for three year or 10 year fixed rates too – even lifetime fixed rates.

So no matter what happens to those rates, which at the moment seem to change hourly,
your payments will stay at that amount. The disadvantage is that if rates do go down, you’re secured into that fixed rate and you would have to pay a penalty to leave it – known as an early repayment charge.

But if rates go up, you’re locked in at that amount. You know you’ve got the right deal available for you and you’ve fixed your payments.

There are different types of variable rates, but one the main two is a tracker rate, which tends to track the Bank of England base rate at a certain percentage above. If the base rate goes up or down, your payments would change too. But generally, most lenders wouldn’t tie you into that.

So if rates started to creep up and you wanted to fix, or rates went really low and you wanted to fix at these low rates, you’ve got that option of doing it.

The other main type of variable rate is the lender’s Standard Variable Rate. You would usually go onto this after a fixed rate or a tracker rate was expiring. It’s determined by the lender themselves. It can fluctuate, and it’s down to the individual lender’s criteria.

Usually, before you come off any rate, you would review it with your advisor. We tend not to recommend switching on to standard variable rates unless it was the right thing for your circumstances at that time.

What is the typical loan term for a Buy to Let mortgage for first time landlords?

Generally, it’s down to individual circumstances and preferences. It’s not the same for everybody, but the majority do tend to go for around 25 years. Some go shorter, it just depends.

A 30 year old buying as an investment might want as long a term as possible, which could be up to 30 years. But for somebody in their late 40s or early 50s buying a property to sell when they retire at 65 or 70, we’d work within that time frame.

So everybody’s different, but generally 25 years is the most common.

What type of property is the best investment for a first time landlord?

This is again down to the individual. Everybody’s got different plans for how much they want to be involved, whether they want a management company and the types of tenants they want.

Are you prepared to do some work on the property? Or do you want something that you can just get tenants straight into? Are you looking at students, families or professionals?

The main thing is really researching the property, looking at the costs and seeing what kind of return you’d get.

How likely are you to get the right tenants in the area you’re looking at? It’s just weighing everything up. There isn’t a specific type of property – it’s about location and your individual preferences.

How can a mortgage broker help?

Mortgage brokers can guide you through the whole process and give you all the facts, based on your preferences and your circumstances.

We will research a comprehensive panel of lenders and look at everything based on what you’re looking for. The main thing I would say to any landlord is research – research the property, research the market, speak to an accountant or a tax advisor and a mortgage advisor.

Get all the information together at the beginning before making any decisions – then you’re armed with everything and we can help you.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

SOME BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

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