Buy to Let Mortgages for First Time Buyers

If you're a first time buyer, that becomes more complex because most mainstream lenders require at least a couple of years of landlord experience to consider a new buy to let applicant.

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Buy to Let Mortgages for First Time Buyers

Applying for a buy to let mortgage can be a challenge, with thousands of lenders, products, interest rates and eligibility criteria to contend with!

If you're a first time buyer, that becomes more complex because most mainstream lenders require at least a couple of years of landlord experience to consider a new buy to let applicant.

Revolution can help with professional advice and support as an independent, whole-of-market broker, compiling a strong application matched to the most suitable specialist lenders.

Please read on for more information about buy to let mortgages for first-time buyers, or give us a call on 0330 304 3040 if you'd like assistance.

We are also available at info@revolutionbrokers.co.uk or via the contact form.

Is a First Time Buyer Buy to Let Mortgage Possible?

It is, yes - although many mortgage lenders are reluctant to offer a buy to let product to a first-time buyer, it is possible to apply successfully.

The risk is higher (because the lender can't check that you have managed mortgage repayments or rental property before). So, although there should be a suitable product out there, you may need to pay a higher deposit and demonstrate a higher rental yield.

What Lender Criteria Apply to a Buy to Let Mortgage First Timber Buyer Applicant?

Lender criteria always vary across the market, and the rules might be a little stricter if you're a first-time buyer and haven't owned any residential or rental assets before.

However, specialist and niche lenders will likely be able to help.

Most lenders will look for:

  • A sizable deposit usually of at least 25% of the property value.
  • Good income and affordability metrics.
  • Your age - normally, you need to be 18+ and below retirement age.
  • A respectable credit rating and a history of responsible financial management.
  • Employment details - PAYE employment on a permanent contract is the best option.

Note that these are general criteria, and not meeting one doesn't necessarily mean you won't qualify for a competitive buy to let mortgage!

However, it does increase the importance of working with an independent broker to negotiate terms on your behalf and match you with the most appropriate lender.

Is a Buy to Let Mortgage as First Time Buyer Interest Only?

The vast majority of buy to let mortgages are paid on an interest-only basis.

Each month you pay solely the interest owing without chipping away at the capital balance originally borrowed to buy the property.

You must have a plan to repay the loan when the term ends, usually called a repayment vehicle or an exit strategy.

Most applicants will plan to either remortgage and keep the rental asset or sell it for a profit, using the proceeds to pay back the loan.

How Do Lenders Assess a Buy to Let Mortgage First Time Buyer Application?

Buy to let lenders use different assessment processes than you would find in a residential mortgage application.

The lender will need to know when the rental earnings potential is and show that the income will be more than sufficient to cover the mortgage costs.

If you're a first-time buyer, a mortgage lender will also focus on your personal income and ensure you have the means to cover the payments if your rental property is vacant.

Therefore, the process feels like a double assessment - you'll need to meet both residential and buy to let mortgage requirements!

What Paperwork Do I Need to Get a Buy to Let Mortgage as First Time Buyer?

The biggest challenge as a buy to let first-time buyer mortgage applicant is that you don't have a history of keeping up with mortgage payments, which makes the lender's risk higher.

If you provide comprehensive documentation with your application, it can help assure the lender that you are a viable applicant - including:

  • Landlord references if you currently rent your property.
  • A full address history of three years or more.
  • Wage slips to prove your annual income.
  • Six months of bank statements to verify your financial standing.

Your selected lender will also need to check whether the forecast rental income is viable. They usually need to see a rental income of at least 125% of the mortgage interest, or 145% or higher if you're a higher or additional rate taxpayer.

For example, if you are applying for a buy to let mortgage on an interest-only basis that costs £500 a month, the lender will need to see documents that show the rent will be at least £725 per month.

The best way to do this is to request a rental evaluation from the local lettings agent, although you can also research similar properties in the area to gain a ballpark idea.

Can First Time Buyers Get a Buy to Let Mortgage on Any Income?

Possibly - mortgage lenders will always want to check your financial position before they offer a product.

However, in buy to let mortgages, the primary factor is the rental income you expect to receive from the property. If you can show estimates (or rental income valuations from a local agent) that far surpass the monthly interest costs, your personal income may become less important.

The lender will usually calculate four or perhaps 4.5 times your annual income on a residential mortgage - that figure is the maximum they will lend.

For first-time buyer buy to let mortgages, the lender may ask for a minimum annual income, separately from the rental earnings - this could be £25,000 or thereabouts as a rough indication.

Although your salary isn't always crucial, lenders have to ensure they lend responsibly and check that you can afford the debt, so they will normally ask for rental projections and personal income details.

What is the Deposit Difference Between Buy to Let and First Time Buyer Mortgage Products?

Standard buy to let mortgage products normally require at least 15% as a deposit, calculated against the home's purchase value.

Lenders can request more and may determine that they will need 20% or 25% as a deposit to accept the risk of lending to a first-time buyer against a buy to let property.

We explore some of the ways to boost your deposit value below or can advise which lenders are most likely to accept your application if you have a low deposit value.

Which First Time Buyer Buy to Let Mortgage Products Am I Eligible For?

If you're worried about eligibility, there are several ways to boost your affordability or secure a buy to let mortgage, even if you fall outside the generic qualification criteria.

Examples could include:

  • Guarantor mortgages mean that a guarantor backs up your application and agrees to make any missed payments on your behalf. Some lenders will accept a lower deposit in respect of the reduced risk. The guarantor doesn't own a share of the property but does feature on the title documents.
  • Joint borrower, sole proprietor mortgages - most common where a parent or member of your family helps with the financial cost of investing in a buy to let without requiring any ownership.

Please get in touch if you'd like further advice about either of these options or other mortgage structures that might strengthen your buy to let application as a first-time buyer.

Can First Time Buyers Get a Buy to Let Mortgage With Bad Credit?

Being a first-time buyer does put you into a less conventional category since most lenders prefer landlords to have at least two or three years of experience to lend.

You almost certainly need to work with a broker if you also have adverse credit issues since mainstream banks are highly unlikely to make an offer.

Revolution Finance Brokers works with several respected bad credit specialists who will consider applications in various circumstances.

Lenders all have different policies, so their decision will depend on the type of credit issues you've had, when they occurred, and whether you've since settled all of your debts.

Minor credit issues such as a late payment a few years ago probably won't have a tangible impact on the approval process, whereas something more severe such as bankruptcy, will be more of a stumbling block.

Does a Buy to Let Mortgage for First Time Buyers UK Apply if I Plan to Live in the Property?

No, buy to let mortgages are designed for homes where the owner rents the residence to a paying tenant - they need to check the rental earnings and use that to decide whether you make enough to cover the mortgage costs.

In most cases, living in a buy to let property would mean you breach the mortgage agreement.

Can I Rent Out a Property Without a First Time Buyer Buy to Let Mortgage UK?

Although it's not technically always illegal to rent out a property without a buy to let mortgage, it's extremely important to ensure you have permission from your mortgage lender.

The worst-case scenario is that you are found to be in breach of your mortgage agreement, which could mean you need to pay back the outstanding mortgage in full, the property is repossessed, or you're even charged with fraud.

This situation changes if you're a cash buyer or own a property outright since you can do what you like.

However, if you have a mortgage secured on a home and wish to start renting it out, you must inform your lender.

That normally means either seeking consent to let or switching your mortgage to an appropriate buy to let product.

Buy to let mortgages tend to be slightly more expensive than residential loans and have higher deposit requirements, but you aren't permitted to rent out a home on a private mortgage without approval.

Are Buy to Let Mortgage for First Time Buyers UK Products Available Through a Limited Business?

Commercial mortgages for rental properties are available, although it might not make it easier to find a mortgage if you're trying to scour the market independently.

Most lenders will require a fairly extensive amount of information to lend to a newly incorporated business, particularly if the owner hasn't had a mortgage before.

The same underwriting policies apply, so you'd need to find a commercial lender that offers products to limited businesses with a first-time buyer policy that would consider you eligible.

As a niche buyer on two fronts, it can be tricky to find a competitive product - an independent, whole-of-market mortgage brokers is an essential support system to ensure you find the right lender and the best product available.

Why Revolution Brokers?
  • Whole of market brokers

  • Mortgage that suits you

  • On time customer support

FAQs

How does our broker-matching service work?

Unfortunately not, Help to Buy equity loans are only available for residential property purchases, and the scheme doesn't apply to rental assets.

The same applies to the Lifetime ISA - although you're still a first-time buyer, the initiatives are designed to help people get onto the property ladder and buy a home to live in, so they aren't open for landlords.

You can, though, use any savings within an ISA plus interest accrued towards the deposit cost - although you won't get a 25% government top-up.

If you mortgage a residential home as a first-time buyer, you are exempt from Stamp Duty up to £500,000, but this works a little differently if it's an investment property.

The government levies a 3% second homes charge (including buy to let properties), but you won't need to pay this if you haven't owned a previous home.

However, you also won't benefit from the reduced Stamp Duty rates because the benefit doesn't apply to buy to lets.

Therefore, you will pay the standard of 2% on the value from £125,000 to £250,000, 5% from there up to £925,000 and 10% up to £1.5 million.

First-time buyer mortgages are widely available, but much less so if you're applying for a mortgage to purchase a rental property.

There are a few products on the high street, although it's almost always preferable to apply through a broker who can access more specialist products with more competitive rates and terms.

Many mainstream lenders will automatically reject buy to let applicants who haven't owned a property before - a whole-of-market broker will signpost lenders without such rigid policies.

You can certainly remortgage a residential property loan, refinancing the debt with a buy to let product!

Much depends on the type of property, how you plan to let it out, and your personal circumstances, such as credit score and debt-to-income ratio.

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature. We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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