How do lenders assess the affordability of a Buy to Let mortgage for a first time landlord?

Every lender has their own calculations, where they look for a certain amount over the rental income. If you are a First Time Buyer, not only would they assess your own personal income, but they would look at the rental income for the property in comparison to the mortgage payments. There needs to be a certain amount on top of the mortgage payments for that to be accepted.

On the flip side, if you own a residential property already and are looking at buying your first Buy to Let, most affordability checks will be done solely on the rental income, to make sure it covers over and above the actual mortgage payment.

If you’re a higher rate taxpayer buying in your personal name, they are a bit harsher on how much they would lend, whereas if you’re buying through a limited company they become more relaxed.

What are the common mistakes made by first time landlords when applying for a Buy to Let mortgage?

A lot of our first time landlords don’t do enough research before deciding to buy a property. You can buy properties in the north substantially cheaper than properties down here in the south. On paper, they look amazing, but because they don’t know the area they don’t know the types of tenants that’ll be looking at the property. They can end up buying properties that cause them headaches – even though on paper the yield and the return looks great.

The second issue is having bad credit. If you’ve been missing payments in the run up to buying your first Buy to Let property, that can also cause you problems.

Finally, we’re not tax advisors, but not researching whether you should buy in your own personal name or a limited company, to suit your long term goals, could be the deciding factor on whether it’s a profitable investment for you or not.

Are there any tax implications that first time landlords need to be aware of?

Again, we are not tax advisors so we can’t give too much information about that. If you’re looking at investing in Buy to Let property, go and speak to an accountant. Setting it up correctly from the beginning can save you so many headaches later on down the line.

What factors determine the interest rate for a Buy to Let mortgage?

The deposit is key. If you put down a 15% deposit rather than a 40% deposit, that can make a big difference to interest rates and how much you’d be charged.

Another factor is credit. If you have terrible credit and you’ve been behind on credit commitments in the past, while it’s not impossible to get a mortgage the interest rates could be substantially higher.

Last but not least, things change all the time. As things stand today [podcast recorded in February 2024], if you had a two year fixed rate mortgage the interest rates could be slightly higher than on a five year fixed rate. So the term of the fixed rate product can change the interest rate you’d be charged.

What’s the difference between a fixed rate and a variable rate Buy to Let mortgage for a first time landlord?

This is exactly the same principle as when you are buying a residential property. As you’ve probably seen, over the past couple of years interest rates have gone up. If you were on a tracker mortgage when this started, every time the Bank of England rate increased, your next monthly payment would have also gone up.

But if you’re on a tracker mortgage now that the rates have started to come down, you will have seen interest rates fall and your payments reduce alongside that.

A fixed rate is the opposite. If you had a five year fixed rate mortgage and the interest rates have gone up as they have, you won’t have been penalised by that increase. On the reverse side, if you fixed your mortgage now and rates dropped substantially, you won’t benefit from any decrease in your payments.

What is the typical loan term for a Buy to Let mortgage for first time landlords?

There’s no typical loan term because every single person you speak to will have different requirements. Some people will want to sell the property at a certain time; other people may be restricted on the term due to their age.

Buy to Let does work slightly differently in that area. With residential mortgages, there’s usually a maximum age because it’s based on your income, whereas some Buy to Let lenders take a common sense approach – even if you apply for a mortgage before your 105th birthday they can still allow you to get a Buy to Let mortgage.

It’s based on the ability to service the mortgage on the rental income rather than your own personal income. So you could have the mortgage over a longer term in comparison to a lot of residential mortgages.

What type of property is the best investment for a first time landlord?

Again, this depends on many different factors. We could speak to five different first time landlords and each would have different goals, timeframes and levels of funds.

It depends massively on what you want to do. With a Buy to Let flat, for example, there could be a ground rent and service charge to pay every month. But you haven’t got as much maintenance to do with the garden, the building or the roof.

If someone has a lot of spare time, buying a property to run as an HMO might be the best investment for them. It’s such a hard one to answer, because everybody has their own goals, experience, money and time.

How can a mortgage broker like Bolt mortgages help somebody with Buy to Let as a first time landlord?

If you speak to one lender about your Buy to Let mortgage they can be very rigid with their criteria. If you don’t fit into that little box to get your mortgage accepted, you could be declined. That could be very disheartening for your goals to get on the property ladder.

We work differently. We have access to substantially more lenders and more products – so if you don’t match one lender’s criteria, we’ve got other options.

We’ve also got a lot of experience in dealing with Buy to Let investors. A lot of brokers are amazing at residential mortgages, but because we’ve helped so many Buy to Let investors in the past, we have a lot of experience in that area too. We’ve seen the weird and wonderful, quirky cases. That means that we could potentially get deals over the line that your standard residential broker couldn’t.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.

SOME BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

Approved by The Openwork Partnership on 15/03/2024.