First Time Buyer Buy to Let Mortgages Explained

Malcolm

Hi, it's Malcolm, and I'm joined by my colleague Wayne. Today we're going to be talking about first time buyer buy to let mortgages. Some people might be wondering why on earth a first time buyer would buy a buy to let property rather than purchasing a property to live in.

Wayne

An example of this is you might be in a job where you've got tied accommodation with your employer. It could be that you're in the armed forces, and you might be posted in different locations, but you like the idea of actually making that investment in property.

Maybe you're just comfortable living at home but want to get something for your future down the track.

Malcolm

Now only a small number of lenders will allow a first time buyer to take out a buy to let mortgage. Why do you think that is?

Wayne

It comes down to risk. Lenders will always assess the risk, and if you are buying a property to let, you're not living in it. If things don't go to plan and your tenant stops paying you, but you've still got that mortgage commitment to make, you might be more inclined to think, The roof over my head is not at risk here, so I'm going to let that go. That's not great news for the lender.

The other thing is that lenders like to look at what your background is. Now, they can build up a much better picture of you if you've already got a mortgage on your house that you live in, and you've proved that you pay your mortgage payments on time. Such things as your credit score are more likely to be better because you've already got a mortgage.

It's back to that angle of risk. If you are buying for the first time on a property to let, it might not be as straightforward as a lender would like.

Malcolm

The other thing is that for a residential mortgage application, you're not going to be able to get more than the lender's maximum multiple of income, whereas Buy to let affordability gets assessed differently.

They tend to work from the projected rental income. So there's a danger for lenders that this first time buyer might try and circumnavigate the rules and live at the property themselves.

Wayne

That go buy to let, as we call it.

Malcolm

Search for the lenders in the first time buyer, first time landlord market, and they might carry out their affordability assessment as if it were a regular residential application.

Wayne

They could certainly look at it that perspective, and make sure that it fits.

Malcolm

Can a customer just take out a normal residential mortgage instead, because we get asked that quite a lot.

Wayne

The honest answer is no. People seem to think, why does it matter as long as I qualify for a mortgage? But as advisors and lenders, they price their products according to your intended usage of that property, so the risk factors are different. If you are going to live in a property, it's not being let, you can't have a buy to let mortgage on it.

Malcolm

If you're in a situation where you're comfortable at home living with parents, but you've got a 25% deposit and you want to get into buy to let market, can you do an interest-only mortgages, as a first time landlord, first time buyer?

Wayne

Generally, with buy to let mortgages you can. The risk is no more to the lender doing it that way, so it would still be available.

Malcolm

It’s an unusual situation, but something that we do come across from time-to-time. As a first time buyer, you probably need a bit more help and guidance along the way, and we're certainly here to hold your hand throughout the full process.