Compare Buy to Let Mortgages for First Time Buyers from leading mortgage providers
As a first time buyer, acquiring buy to let mortgages can be difficult and there are many hurdles in the way of securing that much needed loan. Lenders will typically carry out affordability checks through which they will look at your earnings and what you are likely to earn over the period of the proposed mortgage. The higher one’s earning potential, the more likely it will be to secure the loan needed as the loan itself will not be worth more than 3 – 4 times the applicant’s salary.
Also, while experienced landlords may get the better deals, a first time buyer can also get a good interest rate provided they have a good credit history. It is also important that first time buyers understand the fees associated with buy to let mortgages and the risks involved.
First Time Buy to Let Mortgages: How much can I borrow?
A ‘normal’ mortgage’s value is usually linked to the household income against the value of the property, which allows for affordable payments. However, a buy to let mortgage is normally allowed to be around 3 – 4 times the salary of the landlord. For example, if the landlord’s annual salary is £50,000, they will be allowed to take out a mortgage of up to the value of £150,000 over a particular period of time.
Different buy to let mortgages providers will vary how much they lend. Buy to let mortgages, unlike home mortgages also take into account the amount of rent that will likely be earned from the property. To estimate the value, many landlords will ask an experienced letting agent for an assessment of the property and its earning potential in comparison to similar local properties. Having a property in a good area can be key to seeing a positive return on investment.
Fees Involved With Buy to Let Mortgages
Inevitably there are various different fees that should be taken into account when looking to apply for a first time mortgage. Most fees will need to be paid before you are awarded the buy to let mortgage loan:
Arrangement fees are required by every lender at some point during the process of securing your buy to let mortgage. While there are lenders who will only ask for these fees once the loan has completed, there are many lenders who require it as an upfront cost, in case the loan doesn’t go through. These fees are therefore often paid as part of the initial application for the mortgage itself. Arrangement fees are typically 1-2% of the total loan fee up to mortgages worth £1 million.
As the mortgage is dependent upon the value of the property, the property needs to be valued by a professional. A valuation will normally require an extensive report on the property and can cost more than £500. Since residential buy to let properties do not require the surveyor to visit them in the way that commercial properties do, their valuation fees are usually cheaper.
In order to ensure the application process is legally sound and adheres to UK laws surrounding buy to let mortgages and their repayments, a solicitor will be required to look over all documentation and the terms of the contract between you and the lender. As the potential proprietor, you should expect to have to cover not only your own legal costs, but also those of the lender, which together, could cost more than £1,500.
The risks of a First Time Buy to Let Mortgage
The biggest risk of your first buy to let mortgage is that you don’t keep a track of your costs and you fall into arrears. The interest rates for buy to let mortgages are typically higher than a standard mortgage. Failing to keep up with mortgage repayments can lead to a negative impact on your credit score and your property may be repossessed by the mortgage provider to cover their costs.
In addition to monthly mortgage repayments, you may also need extra money to do up the property. Most people apply for a buy to let mortgage because they want to renovate an existing property which they can rent out or resell for more. As a new property you may need to pay for new walls, floors, kitchen, bathroom, paintwork, mattresses and more. So as a first time buyer, you have to weigh up the additional costs for redoing the property and the ongoing maintenance. If you are charging rent to tenants, you want to ensure that everything works and as a landlord, you will need to cover the costs of broken white goods, electrical products and alterations.
If you want to charge rent to tenants in order to generate revenue, you will typically charge 125% of your mortgage, so that the extra 25% is profit. However, a risk to consider is if tenants don’t pay and how this will lead to a loss of income. As a landlord, you can get insurance to cover the cost of lost income and you can always request a deposit when the tenant moves in. We recommend finding good tenants beforehand and you can always check their credit score to see how well they have made other repayments in the past.
With all these risks into consideration, the best thing you can do as a first time buyer looking for a buy to let mortgage is to buy a property in a good area. If the property can maintain its value or increase in price overtime because the area is up and coming, you can therefore charge more rent or sell it for more than you bought.
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