First time Landlord mortgages
You’ve made the decision to become a property investor. It’s a big decision, but you’ve looked at all the pros and cons and decided it’s for you. But as this is your first time, you’re likely to come up against some restrictions.
As with most Buy to Let mortgages and for first time landlord mortgages, the affordability is generally calculated based on the property rather than the applicant. Each lender will have a slightly different method of working it out, but it will often be quoted as the Interest Cover Ratio over a specific rate of interest.
For example, 145% at 5.5%.
What this means is your rental figure must be 145% of the interest costs of the mortgage you want, assuming you are paying a rate of 5.5%.
The Interest Cover can vary depending on your tax rate and for each lender, so it’s important you check with each lender, or use a broker who knows what lenders use what calculations.
The interest rate used will also vary depending on the length of time you fix your mortgage for as well as by the individual lender.
As well as this, there is often a minimum income the applicant must have. This can be as low as £16,000 or as high as £50,000 with some lenders.
What You Can and Can’t Buy
Some lenders will restrict what type of property you can buy as a First time Landlord. Generally, these will be Multi Unit and HMO properties.
There is some logic to this, as there are more factors to consider with these properties. More legislation, more people, more costs, more complexity.
If this is a strategy you want to follow you have two options. Buy a single let and prove you know what you’re doing for 6 – 12 months. Or, find a broker with enough experience of the market to help direct you towards the lenders who don’t have this restriction.
There may be some explanation as to why you’re qualified to manage the HMO (even if you’re using a managing agent), but a good broker can usually guide you through this process. But you may not be getting the absolute best interest deals in the market because you’re restricting the lenders. Just something to keep in mind.
Every landlord has to start somewhere, so there aren’t that many hurdles in your way. Whether you decide to buy in your own name or via a Limited company, you should find a lender to help you invest in the property you want.
If you’re looking at investing in a slightly more complicated strategy, then it’s important you demonstrate to lenders you have a great team behind you to help fill any gaps in your knowledge. A good mortgage adviser probably isn’t a bad place to start – but I would say that wouldn’t I?