Most homeowners are aware that there are numerous types of mortgage products on the market, although most people will only learn about the ones they use personally in any detail. However, you don't need to be a landlord yourself to know that buy-to-let mortgages exist to enable landlords to purchase a residential property that they plan on renting out to a tenant. But, do you have to use a buy-to-let mortgage to purchase a rental property, or can you rent out on a first-time buyer mortgage?
Many people assume that they can rent out just about any property they own if they can find a tenant willing to rent from them. However, this isn't how things work. If you want to rent a property that you don't yet own, you'll need to pay cash or use a buy-to-let mortgage. Legally, you can rent a property that doesn't have an associated buy-to-let mortgage, but only if you already own it or purchase it using your own money.
You must always be honest about your intentions for any property you plan on purchasing, especially when you're talking to a mortgage provider or other lender.
You can't simply pretend that you plan to live in the property, and then rent it out as soon as the lender's back is turned. Equally, even if you do genuinely intend to live in the property when you apply for a mortgage but are ultimately unable to, that doesn't mean you can rent it out to recoup your losses.
Within the terms of any mortgage will be clauses that specify what the borrower can and cannot do with the property for the duration of the mortgage.
First-time buyers are defined as people purchasing a property who have never owned one previously. Anyone who applies for a mortgage and is not a homeowner, property investor, or remortgaging a property is considered to be a first-time buyer.
Many mortgage providers offer first-time buyer versions of other mortgages they provide that are geared specifically at borrowers who are also first-time buyers.
Find Me A MortgageThe short answer is, yes, a first-time buyer can still obtain a buy-to-let mortgage. However, the process is slightly different than it's for applicants who already own property or did in the past. Most mortgage providers will also class a buy-to-let mortgage for a first-time buyer as representing a higher risk than if they were applying for a regular residential mortgage. Because of the increased perceived risk, you might have to pay a larger deposit if you want a buy-to-let mortgage as a first-time buyer. However, this isn't always the case and every lender will have their policies.
Not every mortgage lender will be willing to offer a buy-to-let mortgage to first-time buyers, and many of those that do will impose additional requirements before agreeing to offer a buy-to-let mortgage. The situation can vary considerably between mortgage providers, so don't give up just because the first one you ask says no.
Among the additional criteria that borrowers will have to satisfy to take out a buy-to-let mortgage as a first-time buyer, the following are quite common:
- Their income, earnings and savings
- Evidence of your current income and financial situation
- The age of the borrower submitting the application
- Their credit rating
- Their age
Buy-to-let mortgages are usually interest-only mortgages. This means you and the lender need to be confident that you can repay the loan in full on the date specified in the mortgage agreement.
When a mortgage lender considers any application submitted to them, they will have their approach and standards. In the case of a buy-to-let property, they are usually most interested in the property's rental potential. In other words, how much money can it potentially generate from its tenant's rent?
If you're able to demonstrate that the property will generate enough cash to easily cover the cost of renting.
Without a prior history of property ownership or mortgage repayments, lenders will use other documentation and information about you to assess your ability to repay before offering you a mortgage. Every lender will have its policies regarding the evidence they will want to see. This supporting evidence might include some or all of the following:
- A letter of reference from your current or most recent landlord.
- A comprehensive address history that goes back further than the standard three-year history.
- Wage slips or bank statements that show your income and expenses, as well as your overall financial health.
Most lenders will also want you to demonstrate that the property will bring in a monthly rental income that is a certain percentage higher than the value of your monthly mortgage repayments. For regular buy-to-let mortgages, the rental income usually needs to amount to the value of your mortgage repayment plus an additional 25%. However, first-time buyers taking out a buy-to-let mortgage will usually need to reach a higher threshold.
Although there are fewer mortgage lenders that offer buy-to-let mortgages to first-time buyers, there are still plenty of options to choose from. The terms they offer and the eligibility criteria they use to assess your application will vary between lenders, just like they would for any type of mortgage. However, because first-time buyers are usually considered higher risk applicants, they will need to convince a lender that they can afford a buy-to-let mortgage and the responsibilities of being a landlord.
WIS Mortgages is a mortgage broker in Kent, London, Essex, and Buckinghamshire. We offer free advice for anyone searching for the right mortgage for their needs. We cover the whole of the UK and provide specialist advice for contractors. Our buy-to-let mortgage calculator for individuals enables you to quickly find out how much you could borrow based on the property's expected rental income.
As a mortgage is secured against your home/property it may be repossessed if you do not keep up with the mortgage repayments.
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