First Time Landlord Mortgage

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Author: Elliott Culley - Director & Mortgage Adviser of Switch Mortgage Finance

What is a First Time Landlord Mortgage?

A first-time landlord mortgage is a specifically designed for clients looking to purchase there first buy to let mortgage.

Not all mortgage lenders offer mortgages to first time landlords so you need to make sure you apply with the right lender.

Can a First Time Landlord Get a Buy to Let Mortgage?

Yes it is possible to get a mortgage as a first time landlord, but some lenders will not offer products to you. Others will only offer them under certain circumstances.

Finding the right mortgage lender from the start saves time and money. Applying with lenders that aren’t suitable can result in you being declined, which can also damage your credit score.

How Hard Is it to Get a Mortgage as a First Time Landlord?

Not every lender will accept first-time landlords, and the majority will want you to be an existing homeowner or own an existing property (e.g. another buy to let).

If you don’t, Mortgage lenders will view you as high-risk, as you’ve yet to own a property and therefore don’t have a track record of making mortgage payments. They may also have concerns you may end up living in the property.

If for example you live with your partner and they own the property solely in their name, and you are not named on that property, you will find there are less lenders available to you.

If you are a first time buyer purchasing their first property as a buy to let mortgage, then again you will fall into the same category and will need to find a lender who accepts you as a client.
If you are completing a joint application with somebody who is already a homeowner then this helps increase the amount of lenders available to you, but it is not imperative to do this. There are lenders willing to help you. 

Speak to an Expert!

elliott-culley-mortgage-adviser- director-of-switch-mortgage

Contact us today for expert advice and guidance on your unique mortgage and property needs. We will work with you on a one-on-one to basis to help you find the right solution for your needs.  

With our experience you can rest assured that you are in good hands when it comes to securing the financing you need for your property.

HMO mortgage for a first time landlord

It is possible to obtain a HMO mortgage as a first time landlord. Whilst many lenders prefer you to have experience, there are some who approve HMO mortgages for new landlords.

Provided the HMO property you are considering purchasing has 6 or less bedrooms, you will have options available. If your HMO property has more than 6 bedrooms there is one or two mortgage lenders that may consider this.

You cannot be a first time buyer trying to purchase a HMO as your first property, unless a joint application with someone with BTL experience.

Why Would a First Time Landlord Want a Buy to Let Mortgage?

Investing in a buy to let property can provide you with a monthly income and most see it as an investment opportunity. Purchasing a buy to let property can be a great investment, but you need to make sure you do your research to make sure you consider everything before you purchase.

Depending on your tax status it could be more beneficial to purchase the property in a limited company rather than your personal name. Finding out the best way forward can save you time and maximise your profits.

How Much Deposit Will I Need?

The majority of buy to let mortgage lenders require borrowers to have at least a 25% deposit. You may find a mortgage lender willing to accept 20% deposit, but this is rarer.

How Much Can I Borrow?

There are two main factors which determine how much you can borrow on a buy to let mortgage.

Firstly you need to consider loan to value, most lenders will require at the least a 25% deposit. Some lenders may allow you to proceed with a 20% deposit. This means the amount you can borrow is restricted by the property value.

Secondly you need to pass affordability. Mortgage lenders consider the projected rental income and will apply this to their stressed income coverage ratio test (SICR). All lenders calculate this differently and it also depends on the type of product you are considering.

Currently you can borrow more on a 5-year fixed rate compared to a 2-year fixed rate. Your tax status or whether you are purchasing this in personal names or as a ltd company can also affect borrowing capacity.

Provided the rental income passes the lenders stress test, the loan will be affordable, and you will be able to obtain a mortgage. 

first time buyer buy to let mortgage. Switch Mortgage finance fareham and whiteley

What Criteria Do I Need to Pass For a First Time Landlord Mortgage?

Buy to let mortgage lenders each have varied criteria. As a first time landlord there is some standard criteria you will need to pass:

  • 20-25% deposit minimum
  • Meet a minimum income (around £20,000-£25,000)
  • Affordability assessment
  • Minimum age of 21 or 25 with other lenders
  • Good credit history

What Documents Will I Need to Apply?

The mortgage lender will carry out an assessment on you to ensure they are happy to lend to you. Lenders will want to know you can afford to purchase the buy to let property and establish you are serious about owning one.

Lenders could request the following documents:

  • Proof of Identification
  • Income Verification
  • Address Verification
  • Bank statements (personal or business)
  • Assured shorthold tenancy Agreement (AST) if the property is already rented
  • Evidence of the potential rental income carried out by an ARLA-qualified letting agent or a qualified surveyor if the property is not currently rented.

Mortgage lenders may ask for further documentation, however the above list is mandatory documents which will be required.

Should I Get an Interest Only or Repayment Mortgage?

Most landlords choose interest-only mortgages in comparison to repayment mortgages. The mortgage payments for interest-only are low in contrast to repayment mortgages, as you’d only pay interest on the loan. This can maximise your profits and borrowing potential.

With a repayment mortgage, you’d repay the loan in addition to the interest, resulting in a higher cost each month. The main advantage of having a repayment mortgage is that you’d own the property outright once the mortgage has been fully repaid. The drawback of this is that monthly mortgage payments are higher which limits your rental profits and males the affordability test harder to pass.

What if I Have Bad Credit?

If you have bad credit, getting a buy to let mortgage will be more difficult. However there are specialist lenders that may accept you. You may be required to put down a deposit higher than 25% and you may find the interest rates offered will be higher.

Some lenders won’t accept you at all depending on your credit issues, whereas others will be better suited. As a first time landlord, you don’t want to risk damaging your credit score further, so applying with a suitable lender first time is important. A mortgage broker will have the experience to recommend the correct lender in this scenario for you.

Do I Have to Pay Stamp Duty Tax on a Buy to Let Property?

If you are a first time buyer then there is a discount. However if you already own a property you will have to pay stamp duty with an extra 3% surcharge.

Can I Live in My Buy to Let Property?

No, if you plan to live in a property that you purchase, you will need a standard residential mortgage rather than a buy to let mortgage. This is because buy to let mortgages are specifically designed for the purpose of letting out the property to tenants, not for owner-occupiers.

Why Choose a Mortgage Broker?

First time landlord mortgages can be complex and you’ll need a careful approach when applying. For this reason, we’d highly recommend having an advisor on board. Our specialists can find you a suitable lender and help you secure a mortgage in no time at all.