With income multiples tight, salaries low and property seemingly more and more inaccessible to first time buyers many are asking “would it be possible for me to get on the ladder by taking on a property to let out?”. This is appealing to many as it would in some cases allow a larger property to be purchased than might be possible using the applicants salary alone but it does have some pitfalls, not least the shortage of lenders prepared to consider these cases.
Basic Requirements to Obtain First Time Buyer Buy To Let Finance
The lenders who consider these mortgages take different views on what is acceptable as a ‘minimum’ requirement for personal means in order to take on an investment property with no experience. This ranges from showing you have enough savings not just for the deposit but to cover some rental voids to showing that you could have obtained the mortgage on an income assessed basis if you had wanted to live there.
This protects them from the situation which had been common in the past (pre credit crunch) where first time landlords could buy property significantly out of their means simply because the rental cover made sense. Of course both the landlords and lenders came into difficulty during rental voids as unlike many professional landlords these first time amateurs had left insufficient protection in place for the bad times.
Because of the differing requirements from lenders and shortage of lenders available I would suggest taking the advice of a buy to let professional before spending too much time pouring over the property pages of your local paper! It might be that your adviser simply tells you to wait or buy a much smaller property than you had imagined you would be able to purchase. There will no doubt be a number of aspects from taxation, to protection planning that you will not have considered as an inexperienced investor and your adviser will be able to highlight these early in the planning process.
Is 2011 the Year to Buy?
This is an extremely difficult question to answer. Most analysts seem to be predicting short term falls in both equities and property followed by a bounce back towards the end of the year. I would strongly suggest that any investments you make are part of your long term property investment strategy and make sure you have the financial stability and means to support your investment during any rental voids.
You should also remember that interest rates are predicted to rise during the next two years. This will have significant impact on your short-medium term mortgage rate. You should consider whether rent rises will be possible in the area you choose to invest or if you would need to make up any shortfall in rent out of your personal means. Also consider whether now is the right time for you to try to get onto the property ladder – rushing into an expensive mistake doesn’t do you any good at all.
There aren’t many options for first time buyer buy to let mortgages. The handful of lenders who are interested in this kind of lending are generally looking for one of 3 things:-
- Higher rental yield (rental cover) of the mortgage payment
- Good personal income
- Reasonable level of personal means/savings to help with void periods
These factors help protect the lender against some of the risk of rental voids leaving the mortgage unpaid as it discourages first time buyers who are only looking to buy to let as they cannot afford a residential mortgage. It would be important regardless of lender criteria to consider these aspects, however and having a good personal income, some savings and a property with an excellent rental yield should be considered absolutely crucial to start a successful career as a landlord especially as your lack of experience will make things more difficult for you to start with.