First-Time Buyer Buy-to-Let Mortgages: Everything You Need to Know

Estimated reading time 8 minutes

Are you buying your first property investment property? If your answer is yes then this first-time buyer buy-to-let mortgage guide will aim to cover everything you need to know about taking out your first buy-to-let mortgage.

Understanding mortgage terminology

It is wise to understand the terminology associated with buy-to-let mortgages. When it comes to applying for one, you don’t want to be caught out or confused.

What is a buy-to-let mortgage?

A buy-to-let mortgage for a first-time buyer is a loan agreement taken out with a bank or building society to buy a property that is to be rented out to other people rather than to live in. The borrowed money is secured against the value of the property until the loan is repaid.  The owner will be referred to as a landlord rather than a homeowner as they will not live in the property.

When you take out a buy-to-let mortgage the mortgage is assessed on the potential rental income of the property as well as your own personal income, unlike a standard residential mortgage where it is solely your income.

Gaffsy says .. It’s important to understand that with a buy-to-let mortgage, the expectation is on the rental income to cover the mortgage repayments, often more so than your personal income.

How much deposit will I need for a buy-to-let mortgage?

The deposit the mortgage lender requests on a buy-to-let mortgage is the amount of money you have to put down to purchase the property. Due to the risk associated with rental properties the mortgage company will typically request a higher deposit than for a residential mortgage. The deposit is likely to be at least 20-25% of the property’s value although it can be as high as 40%. 

Gaffsy says … A larger deposit could secure you a better mortgage rate as the mortgage lender assumes less risk. But it is a balance between finding the upfront cash to secure the lower rate and therefore smaller/shorter repayments vs the alternative of larger and longer repayments.

What is the mortgage term for a buy-to-let mortgage?

The mortgage term refers to the length of time you have to repay the loan. Buy-to-let mortgage terms vary but they typically span 15-25 years. If you are a landlord whose mortgage term is coming to an end and you do not have the money to pay off the balance owed you have a couple of options, one to sell the property or two to re-mortgage.

Gaffsy says .. Whilst longer terms might mean lower monthly payments it is important to consider that the total amount of interest you’ll pay over time will be larger. If you have come to the end of your term and want to sell your rental property or thinking you want to sell your property portfolio, please contact Gaffsy your trusted genuine cash house buyer for a free cash offer today.

Types of first-time buy-to-let mortgages

There are a variety of buy-to-let mortgages available for first-time buyers, and you will need to see what option works best for your property plans.

Repayment or interest-only mortgages

Repayment mortgages involve paying both the principal and interest. If you take out a repayment mortgage at the end of the term the loan you borrowed will be fully paid off.  Due to the fact you are paying both the interest and principal, your monthly repayments will be higher than if you have an interest-only mortgage.

Interest-only mortgages require you to make interest payments on the sum you borrowed. This means that at the end of the term of the loan, you will still owe the lender the principal. Some buy-to-let investors choose this option as they intend to sell the property at the end of the mortgage term and making lower monthly payments makes it easier to meet the rental criteria for buy-to-let mortgages.

Gaffsy says … Interest-only can be tempting for lower monthly costs, but ensure you have a plan to repay the principal. Do you still owe the principal and want to sell your buy-to-let property fast? We can remove all the stress by making that happen. We buy any house and can have the process completed in just seven days.

Fixed or variable rate mortgages

A fixed-rate mortgage guarantees that your monthly payments stay the same during the fixed term whether interest rates rise or fall. Whilst it offers stability in repayments, it typically comes with a slightly higher interest rate.

A variable rate moves up or down depending on your lender and changes to the Bank of England base rate. This means your mortgage payments can go up or down.

Gaffsy says … If you want predictability in your budgeting a fixed rate might be your best option. However, if you’re comfortable with some level of unpredictability and think rates are going lower a variable-rate mortgage may be a better option for you.

Government schemes for first-time buy-to-let buyers

Most government schemes are aimed at first-time buyers purchasing residential properties, not buy-to-let investments. See our first-time buyers mortgage guide for people not purchasing buy-to-let to find out about the assistance offered for those properties.

Gaffsy says that while direct government help may be limited for buy-to-let investors, staying informed about any available schemes or tax benefits is crucial.

Gaffsy says … Please don’t forget as a first-time buyer if you are purchasing a buy-to-let property you will not be eligible to benefit from the first-time buyer stamp duty relief it is therefore important to factor this into the purchase price.

Securing your buy-to-let mortgage

Getting the buy-to-let mortgage secured is the important part. The steps below will help you achieve it!

How much can you borrow for a buy-to-let mortgage?

To be eligible for most buy-to-let mortgages you will need to show that the rental income will cover 120% of the mortgage repayments.  The lender will also want to know that you can cover the repayments if the property is not rented out. As a result, your income and employment status are also taken into account.

Gafffsy says .. make sure the rent you intend to charge at least covers your costs (insurance, repairs, tax, agents fees etc). It’s important to work out what you’ll need to spend each year and to include any periods when the property may be empty to better calculate what you can borrow. Don’t be afraid to seek advice and check out the buy-to-let affordability calculators and mortgage borrowing calculators.

Comparing mortgage rates

Take the time to explore what buy-to-let mortgage rates you are eligible for. Depending on the size of your deposit, the term of your mortgage, and the number of you taking out the mortgage, the interest rates could vary significantly.

Gaffsy says … don’t be afraid to shop around, don’t just go to your bank or building society check comparable websites and seek professional advice.  If you can’t find what you are looking for then an experienced mortgage broker may be able to help you find a suitable deal and may be able to find you broker exclusive deals.

Check the criteria

It is important to check that you meet the criteria of the lender. Some lenders will not lend a buy-to-let mortgage to first-time buyers. So, first, check whether a lender will be willing to lend to a first-time buyer on a buy-to-let property. Some may also require those on the mortgage to be over the age of 21. Securing a mortgage in principle would be advisable.

The deposit for new builds tends to be higher than those for older properties and for all buy-to-let properties the lender will want to take the loan to value (LTV) into consideration. Some lenders will not lend on HMOs (houses in multiple occupation) so you will have to find a specialist lender. Should you be a portfolio landlord, you will have to ensure that the lender accommodates your collection of properties.

Gaffsy says … checking you meet the criteria and eligibility before applying will save you time in the long run. If you want to sell an HMO check out our guide and or speak to our experienced team of HMO purchasers.

Congratulations!

You have successfully completed Gaffsy’s first-time buy-to-let mortgage guide.

If you thinking of selling a buy-to-let property or selling a house in London get a free cash offer for your property today.  Whether you are looking to retire or have decided you no longer want the headache of being a landlord and want to convert your assets to cash, Gaffsy your trusted genuine cash house buyer is here to help contact us today.

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