Buying a home for the first time is a milestone moment in any individual’s lifetime. No matter whether you want a fixer-upper, a forever home for you and your future family, or even to let it out to tenants, it can be an exciting time but also a stressful one.
If you’re interested in purchasing a buy-to-let property, and you’re a first time buyer, you might be wondering whether you have the eligibility to get a buy-to-let mortgage. Luckily for you, we have all the answers below in our blog.
Read on to find out whether you can buy-to-let as a first time buyer, what you should consider, and what to research when investing in buy-to-let properties.
At Opulent Invest, we work with reputable developers to identify the best investment opportunities for our clients. Check out our top buy-to-let properties for sale here.
What is a buy-to-let property?
As the name suggests, a buy-to-let property is specifically bought for the purpose of the owner renting it out to tenants. This means the buyer will purchase the property and then act as a landlord (or pay for a management company to take over those responsibilities for them).
For the landlord of the property to make a profit, the rental payments must be higher than the mortgage repayments, letting agent fees (if they are using one), and the cost of maintenance. If the property is rundown, you might need to pay for renovation costs to ensure it’s eligible for people to live in.
If you’re wondering if buy-to-let is worth it, check out our blog.
So…can you buy-to-let as a first time buyer?
Yes, there is potential for first time buyers to pursue a buy-to-let mortgage. For example, if you can’t afford to rent in the area you live in, a buy-to-let mortgage can be a way for you to get your foot on the property ladder.
Property investment is also lower risk than other types of investment opportunities. This is because this type of capital will most likely appreciate over time, meaning there’s always a profit to be made. What’s more, the rental payments this type of investment generates can provide a steady income.
Why should first time buyers consider investing in buy-to-let properties?
There are several reasons why first time buyers might benefit from investing in buy-to-let properties, including:
High rental yields
A rental yield is the amount of return on investment from renting a property you own out to tenants. To calculate it, you can divide the expected annual rent of your property and multiply it by 100. If a property has a high rental yield, it’s a much better investment opportunity than those that have a lower rental yield. This is because there is a better profit to be made. So it’s worth considering this when choosing whether to invest in buy-to-let properties, even as a first time buyer.
Typically, cities in the North of England and even some areas of Scotland tend to have higher rental yields than London property investment opportunities. This is because property prices are generally lower than those in the South of England, but the expected market rents are higher. This is why investors tend to favour:
Long term capital appreciation
Another reason why first time buyers might want to consider investing in buy-to-let properties is that it can provide long term capital appreciation. This is because properties typically rise in price over time, so no matter what you bought your property for, if you sell it down the line, you’ll likely make a good profit. To make the most of your investment’s capital appreciation, there are a few factors you should take into account.
Firstly, look at places where there appears to be significant regeneration and investment in the area. To do so, find your town or city’s local council website for an idea of upcoming investment projects. Moreover, if the area is expecting an increased population growth over a certain period of time, this will lead to increased property demand. As a result, property prices will increase as there will be more competition.
Experience and skill development
Another reason why property investment is a good opportunity to pursue is because it can provide good experience, as well as increase your knowledge of managing an investment and even prepare you for future homeownership.
It can also be helpful in terms of your career, as it can help you gain a better understanding of the importance of legal compliance, as well as help you to build relationships with important people in the property industry. This can help you grow your portfolio in the future, too.
What happens if you have void periods in a buy-to-let property?
A void period in a buy-to-let property refers to periods of time when the property is vacant and without tenants, meaning no rental income is being generated. Meanwhile, the owner of the property will still have to pay costs like mortgage payments, council tax, and utilities.
Whilst it’s a natural part of owning a buy-to-let property and should be accounted for, long void periods can have an impact on the amount of profit you can achieve. To avoid falling victim to long void periods, ensure you:
- Do your research to check area demand
- Advertise for a realistic market rent
- Seek areas with higher rental yields
What to consider before investing in buy-to-let property
Before investing in a buy-to-let property, especially if this is your first home, ensure you take the time to consider the following:
You’ll need a bigger deposit
One thing you’ll need to make sure you consider is the fact that you will likely need to pull together a bigger deposit for a buy-to-let property.
This is because lenders view it as a higher risk investment than other types of property investment – such as a standard residential mortgage. For example, the unpredictability of rental income and risks that renting property out to tenants – such as damage. Generally, you’ll need a 25% deposit.
You’ll need a steady predicted rental income
When investing in a buy-to-let property, you’ll need to provide proof that your projected rental income covers the monthly mortgage payments.
They might stipulate a particular percentage in the agreement to do this, so they know that you can cover these payments – even if you have void periods in your tenancies or the rental price decreases for whatever reason.
You might have landlord responsibilities
Finally, another thing you’ll need to consider when investing in buy-to-let property is that you might have landlord responsibilities. For example, if any property damage occurs (that isn’t the fault of your tenants), you will have to pay to fix this.
However, this is only the case if you don’t use a letting agency, as they can oversee and manage the property, as well as communicate with tenants.
What to research when purchasing a buy-to-let property
When purchasing a buy-to-let property, make sure you do the right amount of research prior. As a leading property investment company, at Opulent Invest, we make time to perform comprehensive research on the following for our clients, such as reviewing:
The location
One of the biggest factors you’ll need to research when purchasing a buy-to-let property is the location of this investment. When you identify a prospective area, ensure you look for places with strong amenities, such as parks, shopping centres, and high-performing schools. This is particularly significant if you plan on investing in family homes or multi-bedroom properties.
For younger working professionals, focus on transport links to the nearest towns and cities – as these can be appealing when it comes to commuters. It’s also helpful to keep an eye out for areas with future development plans, as this can boost the appeal of the area and ultimately increase rental demand.
Population growth
Another factor to consider when buying-to-let is the predicted population growth of the area. The rise in the UK’s population has meant that demand for housing has increased. As property prices remain high, many are opting to rent until they get a chance to step onto the property ladder.
As a result of this demand, property prices and rental payments are increasing, which provides a better profit margin for investors. A good way to get an idea of population trends in a specific area is by checking the Office of National Statistics website.
Reputable developers
Ensure you also take a look at reputable developers in the area in which you plan to invest. This will aid you when it comes to picking the right investment property, as you can establish which developers provide appeal to prospective renters.
For example, you could look at their ratings on a website such as Trustpilot, or see if they have any testimonials on their website. From doing this, you’ll be able to determine how popular the type of buy-to-let property you purchase is.
Buy your first buy-to-let property with help from the experts at Opulent Invest
If you’re looking to purchase a property and are interested in buying-to-let, the experts at Opulent Invest can help. With our decades of experience, as well as vast amounts of expertise, we can offer the guidance and advice to succeed in property investment.
Founded in 2014, at Opulent Invest, we listen to our clients’ specific needs and goals when it comes to their property investment portfolio. Our exceptional commitment to researching our opportunities, paired with our established relationships with reputable developers, means we can offer a comprehensive property investment solution that you can reap the rewards of.
Contact us today for a consultation about purchasing buy-to-let property, during which we’ll make our recommendations based on solid facts and figures. We’ll discuss your current position and explain how we can help grow your portfolio.
Buying to let as a first time buyer: FAQs
Can I get a buy-to-let mortgage with a bad credit rating?
Yes, there’s a possibility you can get a buy-to-let mortgage with a bad credit rating, but it will be more difficult to gain. There are certain criteria that lenders assess applicants on, such as:
- How bad the credit issues are: The more serious the credit issue, the harder it will be for the lender to approve your application. For example, if you owe money on multiple credit cards, this could be considered a serious issue that can affect your chance of being approved.
- How long it’s been since the issue(s) occurred: If a significant amount of time has passed since the credit issue(s) occurred, there’s more of a chance of the lender approving your application. This is because it showcases your ability to manage money better since your credit problems occurred.
- Your current financial status: Lenders will also take into account your financial status when choosing whether to accept your application. For example, they might evaluate your ability to make payments on time, such as your phone bill.
Can I live in my buy-to-let property?
It’s not necessarily illegal to live in your buy-to-let property, but most mortgage agreements stipulate that you must let the home out to tenants.
If the owner of the buy-to-let property violates these terms, it could result in serious consequences. For example, the lender might request that the homeowner pay back the mortgage in full, and if they fail to do so, it could result in property repossession.
Can You Buy-to-Let as a First Time Buyer?
Do you pay stamp duty on a buy-to-let property as a first time buyer?
When it comes to purchasing your first property, you’re eligible for a stamp duty discount. For example, you’ll only be required to pay it on investments over £425,000 until April 2025 (it will then reduce to £300,000).
However, if this home is a buy-to-let mortgage and you don’t intend to live in it, you won’t qualify for first-time buyer Stamp Duty relief.
