Buy-to-let mortgages for first-time landlords

Yes! First-time buyers can obtain buy-to-let mortgages. Investing in buy-to-let can be a viable option for first-time buyers, offering the potential for long-term returns and property appreciation. Different lenders have different criteria, but many lenders are willing to approve a mortgage application to a first-time buyer who wants to become a landlord.

Lenders will consider various factors such as:

• credit history
• personal income
• predicted rental income (more about it later)
• the deposit and how much of the property value you want to borrow (LTV: loan to value – the percentage you will borrow related to the value of the property.)

1. Location: finding the ideal investment area

Choosing the right location for your buy-to-let property is paramount to success. Factors such as proximity to amenities, transport links, schools, and employment opportunities can influence rental demand and property value. Thorough market research, consultation with local experts, and analysis of rental trends will help you identify areas with high rental demand and strong growth prospects.

2. Business structure: personal name or limited company?

Deciding on the business structure for your buy-to-let business is an important consideration. You can operate as a personal landlord or establish a limited company which will need to be set up as a Special Purpose Vehicle (SPV). It essentially means the company operates to own/manage/let buy to let properties. Each option has its own implications regarding taxation, liability, and financing opportunities.

Seeking guidance from a qualified accountant will help you determine the most suitable structure based on your circumstances and long-term goals. This decision can affect the number of options you have for mortgages, rates and fees. If your accountant has advised you to purchase using your trading business, please let us know, and we will provide you with the best mortgage options available to you.

3. Yield: maximising rental income potential

Yield is a crucial factor in buy-to-let investments as it determines the return on investment. Higher yields are generally more favourable, but it’s important to evaluate the yield in relation to the location and property type.

Gross yield is the annual rental income generated by an asset, divided by the price of acquiring it.

As an example, if a property generates a rental of £1,000 a month which equates to £12,000 over the year, and you were to purchase this property for £200,000, you would receive a gross yield of 6% per annum.

£12,000 per annum divided by £200,000 investment = 0,06

Standard Tenancy (AST) Single Household:
Renting out a property to a single household under an Assured Shorthold Tenancy agreement offers stability and simplicity for both landlords and tenants.

House in Multiple Occupation (HMO):
HMO properties accommodate multiple tenants who form separate households and share common areas. HMOs can generate higher rental yields but require compliance with specific licensing and safety regulations.

Student Let:
Investing in properties near educational institutions can be lucrative, as there is often high demand for student accommodation. Student let properties typically operate on fixed-term tenancies aligned with the academic calendar.

Airbnb:
Renting out a property on platforms like Airbnb allows for short-term rentals, catering to tourists or individuals seeking temporary accommodation. Airbnb properties offer flexibility and the potential for higher rental income during peak seasons. The mortgage for this type of property investment is a holiday let.

Holiday Let:
Holiday let properties are designed for short-term vacation rentals, often located in popular tourist destinations. While they can offer attractive rental returns, it’s important to consider seasonality and the management requirements involved.

In London and the South East, where generally yields are lower, a larger deposit may be required, although there are several ways to increase the amount you can borrow when facing lower yields.

Personal affordability assessments (sometimes called top-slicing) are a resource to help your affordability.

If the rental income is too low to allow you to borrow the loan to value you need, we can go to lenders that will accept the use of your personal disposable income to prove the mortgage you require is still affordable (up to the max LTV limits being offered).

Proving affordability long-term

In 2016 the Prudential Regulation Authority laid down new rules for lenders requiring them to use specific calculations for affordability.

One of the rules laid down offered lenders the opportunity to offer more favourable lending amounts when long-term affordability could be proved. Long-term affordability was classed as a term of five years or more. This means we are able to secure a higher loan from many lenders when a five-year fixed-rate mortgage is taken.

• Stamp duty
• Surveys from an independent company to check the property condition
• Solicitor’s fees
• Buy-to-let insurance
• Property maintenance
• Furniture (generally less needed you you are rent for a family)
• White goods (fridges, washing machines, etc)
• Letting agency fees
• Rent guarantee insurance
• Void periods (1 to 2 weeks per year without receiving rent)

Entering the buy-to-let market as a first-time landlord can be an exciting and rewarding journey. By considering essential factors such as location, business structure, yield, type of investment, and financing options, you can make informed decisions and maximise your investment returns.

At Home of Mortgages, our team of experts is dedicated to providing tailored advice and guidance to help you navigate the buy-to-let process with confidence. Start your buy-to-let journey today and unlock the potential of property investment. You can have your first FREE mortgage quote in as less as 15 minutes and have all your questions answered.

Disclaimer: The information provided in this article is for general informational purposes only and should not be considered as financial or legal advice. It is always recommended to consult with qualified professionals regarding your specific circumstances and requirements. By speaking with one of our advisors, you will receive specific mortgage advice tailored to your personal circumstances.