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  • Writer's pictureThe Cedar Crest Team

First Time Buy to Let Landlord?

Everything You Need to Know


Getting a buy to let property can initially seem like an unfamiliar process for first-time buyers or those that have not been through the residential mortgage process. There are some slight differences and obstacles to get around. But once you are aware and prepared, the buy to let mortgage process need not be complex.


Let's look at the 5 main points you should consider before getting started.



Who is eligible?


The main thing to be aware of is that your eligibility for a buy to let mortgage is not based solely on your circumstances as a borrower.

Generally, it is easier to get a buy to let mortgage if you already own a residential property and again if you are already a landlord. However, it is not impossible to get a buy to let mortgage as a first-time landlord.


Your personal circumstances will be taken into account, of course, to determine your credibility as a borrower. However, when determining how much you will be able to borrow, the lender also needs to consider the attractiveness of the property itself.

 


How much can you borrow?


The typical maximum loan to value (LTV) for buy to let mortgages is 75%. You do sometimes see products come on the market with a higher LTV such as 80% or even 85%. However, as these are relatively rare, and as the risk associated is higher with a higher LTV, they will be more expensive.


The amount you can borrow will depend on the expected rental value as well as the value of the property. The best way to check the potential rental level is to speak with a mortgage broker who will quickly be able to calculate it for you. However, it's important to be aware that the lender will conduct their own valuation as part of the mortgage application process and the value that they arrive at from their valuation will be used for the application.

 

Interest Only or Repayment?


A big question for any borrower is whether they choose an interest-only mortgage or a repayment.


Both types are available for buy-to-let landlords. Interest-only mortgages will leave you with more cash flow at the end of each month, so it is popular for buy to let landlords. You need to be aware though that you will still owe the same loan amount at the end of term as when you first took out the mortgage. Whilst the loan may remain the same, the value of the property will likely increase over time. But still, you will need to plan for a repayment strategy for the end of the mortgage term


A repayment mortgage may give you peace of mind that you are paying down the mortgage over time, but the monthly repayments will be higher. Speaking with an experienced mortgage broker can help you understand your circumstances and what may be suitable and available for your situation.

 

Buying Through A Limited Company?


There are many tax advantages to buying your investment property via a limited company structure such as being able to offset mortgage interest on your income tax assessment and paying a corporation tax on profit rather than income tax. Corporation tax is currently 19% which is lower than income tax rates.


One misconception is that it is the company that is liable for the mortgage repayments. In reality, this is not the case, and the lender will still base the application on the majority shareholders of the limited company and their eligibility on a personal level. The individuals are still personally responsible for the mortgage repayments.

 


What Product Features Should You Look Out For?


When deciding which product to go for, the main features to look out for are broadly similar to residential although for buy to let there are some extra things to look out for based on your needs and preferences.


The interest rate is one of the most important factors since this is the cost of borrowing from the lender. You need to consider whether you want a fixed-rate product, which means the interest rate is fixed for say 5 years. Or whether you want a tracker rate which will track Bank of England's base rate + the lender's variable rate on top so, it can go up or down over the mortgage term. Your preferences and rental market conditions will affect what is more attractive at that given time.


Other features could be important for buy to let investors such as the speed of the lender’s ability to offer a mortgage from the point of application, especially if you have found a good property deal. Also features such as whether the product can be ported to another property may be important to you.


The buy to let mortgage market is slightly more complicated than the residential one and the market is also continually evolving. Working with a professional mortgage broker who is experienced with buy to let properties can help simplify the process for you so you can sleep at night.

 

Let Cedar Crest help you with your Buy to Let Mortgage Needs


Cedar Crest is a FCA regulated mortgage solutions firm who works with a range of lenders from high street banks and building societies through to specialist lenders and private banks.

Get in touch with one of our experienced advisers who can help you identify the best buy to let solution for you today.


>> LOOKING FOR A BUY-TO-LET MORTGAGE? <<


Buy-to-let is a popular investment. If you are considering purchasing a property to let, or are investing for the longer term, we can help you take the next step to becoming a landlord. To discuss how we can help you finance it, contact us –UK +44 (0) 203 883 1017 Hong Kong +852 6017 4140 – email info@cedar-crest.co.uk.

Your home may be repossessed if you do not keep up repayments on your mortgage.

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