Can First-Time Buyers Get a Buy-to-Let Mortgage?

If you’re thinking about buying your first property, you may have considered a buy-to-let (BTL) investment. Many first time buyers wonder: “Can I get a buy-to-let mortgage?”

The short answer is yes, but it’s not as simple as getting a regular residential mortgage. There are extra rules, bigger deposits and higher interest rates. In this article, we explain everything first-time landlords need to know.

What Is a Buy-to-Let (BTL) Mortgage?

A buy-to-let mortgage is a loan specifically for properties that are rented out to tenants. Unlike a standard residential mortgage, a BTL mortgage is considered higher risk by lenders. The main reason is that lenders rely on rental income to cover mortgage payments, rather than your personal salary.

Most BTL mortgages are interest-only, meaning you pay only the interest each month. The capital or the amount borrowed, is repaid at the end of the mortgage term. This is different from most residential mortgages, where monthly payments reduce both interest and the capital.

Because of this risk, lenders have stricter rules and higher deposits. First-time buyers, in particular, may face extra challenges.

Can First-Time Buyers Get a Buy-to-Let Mortgage?

Yes, first-time buyers can get a buy-to-let mortgage, but not all lenders offer them. Some lenders prefer applicants with property experience. Others will consider first-time landlords if they meet strict criteria.

Key Points:

• Deposit: Expect to put down 25 to 40% of the property value.
• Income check: Lenders assess the property’s potential rental income, not your salary.
• Property type: Some lenders prefer single-family homes, while others allow multi unit properties or HMOs (houses in multiple occupation).

Getting your first BTL mortgage can be harder than getting your first home mortgage. But with the right research and preparation, it’s possible.

First-time buyers can get a buy-to-let mortgage, but it’s more challenging than a regular home loan.

Lenders usually require larger deposits, higher interest rates, and proof that rental income will cover mortgage payments.

Careful planning, the right property, and professional advice can help first-time landlords successfully enter the market and start building a property portfolio.

Lender Requirements for First-Time Landlords

Lenders look at several factors before approving a buy-to-let mortgage:

• 1. Experience: Some lenders prefer applicants who have rented out a property before. First-time landlords are higher risk.
• 2. Deposit size: Expect a minimum of 25%, but some lenders may require 30 to 40% for first-time buyers.
• 3. Credit history: A strong credit score is important. Missed payments or high debt may reduce your chances.
• 4. Property type: Standard single-family homes are easier to finance than HMOs or flats in low-demand areas.
• 5. Rental income: Lenders usually require the projected rent to cover 125 to 145% of the mortgage interest payments.

Some lenders are more flexible than others. It’s a good idea to speak with a mortgage broker who specialises in buy-to-let mortgages. They can match you with lenders that accept first-time landlords.

Understanding Affordability

Unlike residential mortgages, buy-to-let mortgages are not usually based on your personal income. Instead, lenders focus on rental income.

Here’s how it works:

• The expected rent should cover 125 to 145% of your monthly interest payments.
• If your property is empty for a few months, you must show you can cover the mortgage yourself.
• Lenders may also consider your personal finances if the rent is just enough to cover the mortgage.

Example:

If your mortgage interest payments are £800 per month, most lenders want the property to earn £1,000 - £1,150 per month in rent.

Interest Rates on Buy-to-Let Mortgages

Interest rates on buy-to-let mortgages are higher than standard residential mortgages.

• Typical rates: 4 - 6% (compared to 3 - 5% for residential mortgages).
• Interest-only: Most BTL mortgages are interest-only, so your monthly payments are lower than residential loans, but you must repay the full amount at the end of the term.
• Fixed vs. variable rates: You can choose fixed rates for stability, or variable rates that may be cheaper but can change.

Higher rates mean a bigger deposit is often required. Lenders want a safety buffer to cover potential risks.

Restrictions for First-Time Buyers

Some lenders do not allow first-time buyers to get buy-to-let mortgages. They consider them higher risk than experienced landlords.

However, certain lenders are willing to work with first-time landlords if:

• You have a strong financial profile.
• You are buying a property with high rental demand.
• You are investing in a multi-unit property or HMO.

In these cases, lenders may still require 30 to 40% deposits. First-time landlords should also expect more thorough checks and documentation.

Tax Implications for Buy-to-Let

Before investing, it’s important to consider taxes:

• Rental income tax: Any income from tenants is taxable.
• Mortgage interest relief: In the UK, tax relief on mortgage interest is limited to a basic rate. This means you can’t deduct all interest payments against your rental income.
• Capital gains tax: If you sell your buy-to-let property at a profit, you may need to pay capital gains tax.

Tax rules can change, so it’s wise to speak to a qualified accountant or tax advisor before buying.

Stamp Duty for Buy-to-Let Properties

Buy-to-let properties in the UK carry an additional 3% stamp duty surcharge. This is on top of the standard stamp duty rates for residential properties.

For example:

• A £250,000 property would normally cost £2,500 in stamp duty.
• With the 3% surcharge, the total stamp duty rises to £10,000.

This extra cost can significantly affect your budget, especially for first-time buyers with limited savings.

Choosing the Right Property

Location and property type are crucial for rental success:

• High-demand areas: Cities or commuter towns often have stable rental demand.
• Property type: Flats may be cheaper to buy but can have higher management fees. Houses often attract long-term tenants.
• Condition: Properties in good condition reduce maintenance costs and attract reliable tenants.

Research rental yields before buying. The goal is to ensure the property will generate enough income to cover the mortgage and expenses.

Advantages of Starting as a First-Time Landlord

Despite the challenges, there are benefits to starting early:

• You can start building a property portfolio for the future.
• Rental income can supplement your personal income.
• Property investment can provide long-term capital growth.
• Owning a BTL property may make it easier to get finance for future buy-to-let investments.

Starting small and learning from experience can pay off in the long run.

Tips for First-Time Buyers

• 1. Save a larger deposit: Lenders often prefer deposits above 25%.
• 2. Check your credit score: Improve it before applying.
• 3. Use a specialist broker: They know which lenders accept first-time landlords.
• 4. Research rental income: Make sure the property will cover mortgage and costs.
• 5. Plan for vacancies: Always have savings to cover months without tenants.
• 6. Understand tax implications: Get professional advice early.

Following these steps increases your chances of approval and reduces financial risk.