Buy-to-let offers an other way to the property ladder, but could it be the best move for first-time buyers who are struggling to buy within their area?
If you’ve in the bank a deposit but can’t afford to purchase a property where you reside, you may be considering investing elsewhere in the united states while continuing to rent.
Despite a raft of reforms hitting profits in the last few years, buy-to-let investment remains extremely popular, but it’s not for the faint-hearted.
Here, you can study concerning the various responsibilities of as being a landlord, and get the lowdown on how buy-to-let mortgages work with first-time buyers.
Why first-time buyers purchase property
In some areas of the UK, such as London and also the South East, aspiring first-time buyers will find themselves locked out of home-ownership, even if there is a significant deposit.
If that pertains to you, you might be casting your gaze elsewhere in the united states, and considering whether buy-to-let may well be a better route to the property ladder.
On paper, this isn’t a bad idea. You’ll be purchasing an asset that could be beneficial financially in the long run, or even act as a home in retirement.
Before going for it, however, you’ll have to be 100% sure you’re fully conscious of the responsibilities you’d have like a landlord.
First-time property investment: five key things
Landlord responsibilities
Unlike putting your hard earned money into a checking account, property investment has a tangible effect on other people, namely the tenants residing in the house you’ll be letting out.
With that in your mind, you should consider whether you’re ready to sign up for the commitments of being a landlord.
As along with ensuring the safety of the tenants, you’ll need to adhere to a selection of regulations, such as the staged replacement of mortgage interest tax relief.
To get a taste of the items it’s like to be a landlord, read our article on 16 things buy-to-let landlords have to know in 2022.
Letting agent fees ban
Many landlords leave the day-to-day running of their properties to some managing agent, who takes care of from sourcing tenants to dealing with maintenance.
This part of the letting process is about to be expensive, however, using the government’s ban on letting agents charging fees to tenants, that is due to enter into force from June.
The ban means agents won’t be able to charge tenants for administrative tasks for example referencing and inventories, meaning landlords will have to foot the balance.
Void periods
While every landlord envisages their home being let to a tenant for One year annually with no problems, things don’t always run so smoothly.
Void periods – times when the property sits empty – can lead to a great investment quickly turning into a dud.
This means you’ll need to plan for unexpected expenses and the chance of losing rental income between tenancy periods, during renovation work, or – in the worst case scenario – because you’ve needed to evict your tenants.
Stamp duty
Stamp duty is really a double-edged sword for first-time buyers contemplating investing inside a property.
First, what's promising. While you don’t already possess a home, you won’t need to pay the 3% stamp duty surcharge for investors and second homebuyers, potentially helping you save thousands of pounds.
The big downside, however, is that you won’t entitled to the cut to stamp duty for first-time buyers which was introduced in the 2022 Budget. So when you need to do come to purchase your first property to live in, you’ll lose out again because you already own a property (or owned one in yesteryear).
Mortgage affordability
Buy-to-let for first-time buyers isn’t only for cash buyers, however the bigger the deposit you’ve saved, the greater the deal you’ll have the ability to obtain.
That’s because the market for first-time-buyer buy-to-let mortgages is comparatively small, and some lenders don’t open their product ranges to first-time buyers whatsoever.
When applying for a buy-to-let mortgage, you’ll have to be in a position to prove the home will be profitable. Most lenders have to be believing that rental income will cover around 145% of mortgage payments before they’ll consider offering you financing.
Buy-to-let mortgages for first-time buyers
So how difficult could it be to obtain a buy-to-let mortgage as a first-time buyer?
Of the 2,255 buy-to-let mortgages currently on the market, 421 are for sale to first-time buyers – a little under one in five.
As the table below shows, mortgages can be found at between 60% and 80% loan-to-value (LTV). For any competitive deal, though, first-time buyers will realistically require a deposit with a minimum of 25%.
| Max loan-to-value | Number of deals |
| 60% | 87 |
| 65% | 46 |
| 70% | 86 |
| 75% | 170 |
| 80% | 32 |
Which lenders offer these loans?
Buy-to-let mortgages for first-time buyers are offered by 25 lenders, including high-street names for example Barclays, NatWest along with a host of building societies and specialist lenders.
Not all providers offer deals over the full-range of LTVs, however. The table below shows the utmost LTVs currently available for first-time buyers.
Lowest rates for first-time buyers
The table below shows the least expensive deals by initial rate for first-time buyers across all buy-to-let mortgage types. Many of these chart-topping deals included two-year introductory terms.
As you can observe, the space in cost between the cheapest deal at 75% and 80% LTV is 1.25%, meaning that first-time buyers can theoretically obtain a loan at 80% LTV, however it will be much more expensive.
It’s also important to note the 75% LTV mortgage on offer from Barclays actually beats the very best rates available from other banks at 65% LTV.
| Max LTV | Type of deal | Lender | Initial rate | Revert rate | APRC | Fees |
| 60% | Fixed-rate | Barclays | 1.59% | 5.24% | 4.8% | lb1,795 |
| 65% | Discounted variable | Leek United | 1.79% | 5.69% | 5.3% | lb199 |
| 70% | Fixed-rate | NatWest | 1.97% | 4.74% | 4.5% | lb995 |
| 75% | Fixed-rate | Barclays | 1.74% | 5.24% | 4.8% | lb1,795 |
| 80% | Fixed-rate | Clydesdale | 2.99% | 5.6% | 5.2% | lb1,999 |
Fees on buy-to-let mortgages
Buy-to-let mortgages often include higher fees than residential deals, and some deals charge a lot more than lb2,000 upfront.
As with standard residential mortgages, some providers will offer you handles a lower fee in return for a higher initial interest rate.
There are signs that some lenders are leaving high fees towards fee-free and cashback products, because they turn to entice landlords by cutting the upfront costs of needing financing.
How to get a buy-to-let mortgage
Getting a mortgage can be confusing, so as a first-time buyer it can help to get advice from a whole-of-market mortgage broker.
It’s especially important to think about taking expert consultancy with regards to buy-to-let deals, weight loss than 1 / 2 of these products currently available are just on offer through intermediaries – for example brokers – instead of directly from lenders, as shown below.
| Availability | Number of deals |
| Direct from lenders only | 116 |
| Direct or through an intermediary | 77 |
| Through a middleman only | 228 |
Is buy-to-let still worthwhile?
As you may have gathered, becoming a landlord in 2022 could be a complicated business, but that doesn’t suggest it’s an awful idea.
Before investing in property, you’ll have to do lots of research into the local market and be confident that the home can achieve good capital growth (rise in value with time) and rental yield (the percentage from the property’s value brought in by rent every year).
With the housing industry reducing, properties are no longer experiencing the significant capital growth they once were. So that as uncertainty over Brexit continues, it’s better to proceed with caution.
Good rental yields can still be found, though. The most recent tracker out of your Move claims that investors in the North East of England are enjoying returns of around 5%.
To learn more about the pros and cons of property investment, check out our story on whether buy-to-let continues to be worthwhile in 2022.
