First Time Landlord Mortgages

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What is a First Time Landlord Mortgage?

Every landlord needs to start somewhere. A First-Time Landlord Mortgage is specifically designed for investors who are buying their first Buy To Let property and have no previous experience as a landlord.

Is it difficult to get a Buy to Let (BTL) mortgage as a First Time Landlord?

Getting a BTL mortgage as a First-Time Landlord can have it’s challenges. This is due to the fact that lenders view you as a higher risk if you do not have a proven track record of being a successful landlord. Many lenders only lend to landlords with experience, whilst others have specific products available which may come with less competitive rates. Finding the right mortgage lender and product from the start could save you time and money so working with a mortgage adviser who has experience in investment properties can be a great advantage and prevent unnecessary problems down the line.

How do I qualify as a First Time Landlord?

Each lender has their own criteria that you need to meet in order to be eligible for a First-Time Landlord Mortgage. Standard criteria includes:

• A minimum deposit of 25% (there may be 20% products available but these are with less favourable rates)

• A minimum income requirement- this is usually at least £25,00 per annum

• A minimum age requirement – usually 21 or 25

• A good credit history

• You must pass a full affordability assessment

How much can I borrow for a Buy To Let?

The maximum loan amount for a Buy to Let Mortgage is predominantly influenced by the property being purchased. Initially, the borrowing capacity hinges on the property’s value and the deposit amount available. Although some lenders may permit a 20% deposit, the majority typically require at least 25%.

Additionally, the loan amount is dependent on the anticipated rental income. Lenders aim to ensure that the monthly mortgage payments align with the rental payments. Each lender employs its own rental ‘stress test,’ generally requiring a rental income buffer of 125% for basic rate taxpayers or 145% for higher rate taxpayers. If the property is purchased through a Special Purpose Vehicle (SPV), the 125% ratio is also applicable.

The choice of mortgage product can also influence the borrowing capacity. For instance, opting for a Fixed Rate may allow for a higher borrowing amount compared to choosing a Tracker Rate. This is because a Fixed Rate guarantees a consistent monthly payment, providing the lender assurance of affordability.

Should I get an Interest Only or Capital Repayment Mortgage?

Many landlords prefer Interest Only mortgages over Capital Repayment Mortgages. The appeal lies in the lower mortgage payments associated with interest-only options, where you only pay interest on the loan. This approach has the potential to optimize both your profits and borrowing capacity. However, at the end of your loan term, you still won’t have paid off the original loan borrowed and therefore need to find a way of repaying the loan in full.

In contrast, a Capital Repayment Mortgage involves paying off both the loan and the interest, leading to higher monthly costs. The primary advantage of a repayment mortgage is full ownership of the property once the mortgage is entirely repaid. However, the downside is the elevated monthly mortgage payments, which can eat into your rental profits and also make it more challenging to meet affordability criteria.

Should I buy the Buy To let in my personal name or through a Limited Company Special Purpose Vehicle (SPV)?

There can be huge potential tax benefits of purchasing investment properties through an SPV. However, whether or not you will benefit from these depends on a wide range of factors. It’s worth speaking with a property tax specialist prior to investing to decide what’s best for you.

Speak to one of our property experts to get started on your property investment journey.

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