Buy to Let First Time Landlord

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Buy to Let First Time Landlord

Buy to Let First Time Landlord

Kathryn explains Buy to Let mortgages and how they work for a First Time Landlord.

Podcast approved by The Openwork Partnership on 28/05/2024

What are the requirements for a First Time Landlord to secure a Buy to Let mortgage?

It’s important to know that not every lender will accept First Time Landlords. Some lenders also prefer applicants to be an owner-occupier, or have a minimum income of perhaps £25,000. So the requirements can vary depending on the customer and the lender.

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

Generally it’s 25% of the value of the property. Some lenders will accept a 20% deposit in certain situations.

The loan is actually determined by the rent that the property will receive. Depending on how much rent will be generated, more than 25% deposit could actually be required.

It’s best to speak to an advisor for more information based on a specific property.

Are there any specific mortgage options for First Time Landlords?

There are certain lenders who offer mortgages for First Time Landlords, while others don’t. There are no specific schemes, like there are for purchasing your first residential property. It’s just about finding lenders that allow First Time Landlords.

How do lenders assess the affordability of a Buy to Let mortgage for a First Time Landlord?

Affordability on a Buy to Let basis isn’t generally based on the borrower’s income.

When you buy a residential property to live in, it’s purely based on affordability. But the mortgage on a Buy to Let property is based on the rent that will be received.

Some lenders don’t have a minimum income requirement at all. We’ve had customers before who’ve had a low income, and that’s not important because a Buy to Let mortgage is seen as a business and an investment.

What are some common mistakes made by First Time Landlords when applying for a Buy to Let mortgage?

Potentially, they don’t have the knowledge that experienced landlords would have, for example, around the maintenance and repair costs of a Buy to Let property.

Those costs could be higher than you imagine, and this has to be factored into the overall running of the property. The rent you receive won’t all be profit – you’ve got a mortgage, maintenance and repairs to cover.

Another big one is that as a First Time Buyer and First Time Landlord, you won’t benefit from the stamp duty exemption. So if you bought a Buy to Let property first, you would lose your First Time Buyer exemption.

A lot of people aren’t aware of that – they think that because it’s a Buy to Let and they’re not buying for themselves, they would still get that First Time Buyer stamp duty exemption when buying their own property. But you don’t if you own any other properties. So that’s a big one for anybody looking to buy an investment property before they buy one for themselves.

Some customers in the past haven’t realised that they need a bigger deposit for an investment property. The minimum for a Buy to Let mortgage generally is 25% deposit, although some lenders do accept 20%. You can only use a 5% deposit when it’s a residential property, not Buy to Let.

Speak To an Expert

We’re there to help. There are no silly questions – we like people to ask us about anything and everything that might be going through their mind. 

Are there any tax implications that First Time Landlords need to be aware of?

There definitely could be, but as we are not tax advisers I would always advise any would-be landlord to speak to an accountant. They can give you a personal review on whether tax is going to impact you.

Landlords do have to submit a tax return, because the rent on that property is classed as income on top of any salary you receive. This could potentially take you into a higher tax bracket. So it’s definitely worth speaking to an accountant, because not all clients are aware of that.

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

The interest rate is determined by the Loan to Value, so the more deposit you put down, the better the interest rate. Sometimes you may not meet the criteria of the lender that’s offering the cheapest interest rate. It’s more personal and specific to each customer, based on their personal circumstances.

What is the difference between a fixed rate and a variable rate Buy to Let mortgage for a First Time Landlord?

This is the same with all lenders, whether it be a residential or a Buy to Let.

A fixed rate is secured when you apply for the mortgage, and that rate is fixed for a certain amount of time – such as two, three or five years. You decide on that period when we submit the application. Your monthly payments will stay the same for the whole of that time.

A variable rate is not fixed. You would secure a rate when you apply, but if the lender changed their standard variable rate, your mortgage payment would change the following month.  It can go either way. If the lender reduces their standard variable rate then the mortgage would go down from the following month, and if they increase it, your payment would rise.

A variable rate is the more risky option, but it does work for a lot of people. It’s very customer specific in terms of the most suitable choice.

What is the typical loan term for a Buy to Let mortgage for First Time Landlords?

It depends on the circumstances. You could get up to a 40 year term with some lenders on a Buy to Let mortgage, especially if it’s a First Time Landlord who is in their 20s or 30s.

There are also lenders that will lend up to age 80 and beyond. You could have a very long term on a Buy to Let.

What type of property is the best investment for a First Time Landlord?

Obviously, everybody’s different, but my advice to anybody looking to get into Buy to Let would be looking at properties that are quite cheap to buy, and perhaps need a bit of work doing to them – nothing major, but a bit of TLC. With a high rental yield this would give you maximum return.

My parents were actually property developers, so I do have some knowledge and experience in this. They used to buy really run down properties and do them up. They would then rent them out and use the rent as an income. That’s one way to do it.

The other is to have the mortgage on a repayment basis, so that the rent is paying off the mortgage and giving you more of an investment long term. It depends what your end goal is to decide what would be most beneficial. More recently, however, it’s not been so easy. With rising mortgage rates there hasn’t been as much value in it as there once was.
[Podcast recorded in April 2024]

How can a broker help a First Time Landlord find a mortgage?

We can guide any First Time Landlord through the whole process, and provide help and advice from the moment they start looking at properties.

We would source the right mortgage available for them based on their circumstances and what they’re looking to do. We can also put them in touch with an accountant if they need one, for information on the tax implications and to make sure they go about doing things in the most tax efficient way.

Whether it’s a First Time Landlord looking to buy one property, or someone looking to start a portfolio of properties, all of us at Appletree are experienced in both types of clients. So do get in touch – we’d be happy to help.

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

Approved by The Openwork Partnership on 28/05/2024

Buy to Let First Time Landlord

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