Buy to let mortgages for first time buyers
First of all, let’s have a bit of a reality check. you’ve taken the decision that you want to start your journey into property investment, and are ready to go. You must treat your propeprty investments as a business. it can be a complex, challenging business, and there is significant legislation, responsibilities and difficulties that you will face. Good planning and understanding of the business will help you to mitigate the risk to you and our business. Taking advice on such matters as business structure, taxation, regulation and responsibilities as a landlord should set you in good stead. And sourcing the right properties is crucial.
That said, property investment can be incredibly rewarding for the successful investor.
Criteria for Buy to Let Mortgages
A buy to let mortgage is designed, as the name suggests, for the sole use of purchasing a property to let to someone else. You can let to a family member or close friend, but you cannot live in the house to which a buy to let mortgage is attached.
The criteria for buy to let mortgages are also different to a normal residential mortgage. You will most likely need a higher deposit, have to demonstrate what your rental yield will be from your property, as well as the business case for the property that you want to buy.
Take a look at our blog Residential Buy to Let Mortgages: #3 need to know facts for more detail on this.
As a first time investor, you won’t have equity in other property investments, so finding that could be a challenge. Typically, a buy to let mortgage will be around 75% loan to value, so on a property worth £100,000 you will need to find £25,000. Quite often that’s money left in a will, or raising finance from the equity in your home.
Are buy to let mortgages interest only?
Typically buy to let mortgages are interest only. So you will need to come up with a repayment vehicle for the capital. That could be the sale of the property itself, or some other means of raising the capital through savings or other investments. It’s important to understand the market, so you purchase in areas where strong housing growth is forecast.
Are buy-to-let mortgages regulated?
There are two types of buy to let mortgage. Consumer buy to let mortgages are regulated by the Financial Conduct authority, and are designed for people who want to let out their home. These will suit the accidental landlord. You may have inherited a property, or are going travelling for example. They are not available for new property purchases or professional landlords.
Most Buy to Let mortgages are not regulated by the Financial Conduct Authority,, and do not fall under the 2016 Mortgage Credit Directive. We recommend taking advice from a specialist mortgage broker who can help to fit the right mortgage to your requirements.
Mortgage Protection for First Time Investors
As a new landlord, you have certain responsibilities to your tenants. One of those is to take out landlord insurance. This is a specialist insurance for buy to let properties. It has some similarities to normal residential insurance products, but meets the regulatory requirements for tenanted properties.
You should also consider some of the insurance products that you may already be familiar with, including life insurance, critical illness cover and loss of income. A carefully thought out mortgage protection policy will safeguard your property investment for you and your family if something goes wrong, and you will meet the requirements of the legislation that protects both you as a landlord, and your tenants in the event that something goes wrong. Once again, take professional advice in this area so that you can be certain that you are putting the right mortgage protection in place.
While considering your mortgage protection, you should also factor your property investment into your estate planning. Our sister company Will Protect can assist in this area, and they can be contacted here
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For advice and guidance on your residential buy to let mortgages drop a member of our team a line, and we can take a look at your personal circumstances and help you find the best mortgage and protection products to suit your needs.
Liddle Perrett Ltd is an appointed representative of PRIMIS Mortgage Network. PRIMIS Mortgage Network is a trading style of First Complete Ltd which is authorised and regulated by the Financial Conduct Authority.