Buy to Let Mortgages for First Time Buyers

Mixed feelings?  The idea of purchasing property for rental raising your dopamine level but the worries of finance weighing you down?  Relax and win the battle with guidance from a professional broker.  Among the best are mortgage brokers in London, who can assist with the most profitable deals suitable to your requirements.  There are many options to choose from, and a bespoke deal can be set up.

Stamp duty tax holiday:   For first time buyers during the “stamp duty holiday”, valid till end of March 2021, tax is payable only on properties valued at over GBP 500,000.   This will be a benefit to such buyers. It may also act as an incentive for you to consider the higher than average “buy to let” properties as they will obviously be in more popular areas and thus will earn more rent, too.   However, if the property cost exceeds GBP 500,000,  the stamp duty tax will jump straight to 5%.   Hence, it is essential to look at the various locations and prices that suit your budget.

Buy to let mortgages:  When a property is bought as an investment, a residential mortgage will not apply.  A specific buy to let mortgage will be required. Some lenders consider first time buyers as a risk and may require additional information. They will need to know that the property will be rented.  A higher deposit may be required or proof that the rental income will exceed the mortgage payment.  A trained broker will do his best to make this process less stressful.  

Deposit:  This amount is usually higher than usual, especially for first time buyers.  However, the bigger the deposit, the less risk to the lender and so a more favourable deal with the best interest rate can be worked out.  Deposits are usually 25% of the property’s value, though they can rise above 50%.

Mortgage rate:  This will have to be carefully considered before a decision is taken.  There are two options – Fixed Rate or Variable (Tracker) Rate.  A fixed rate will be agreed upon for a certain period of years. This allows you to plan your payments, with a fixed rate every month.  However, if the rates fall, then you are liable to lose out.  A tracker rate is also agreed for a set period.  It is usually a small percentage above the standard rate and, if this fluctuates, your mortgage payments will again rise or fall.  So you will not be able to predict your monthly payments but will get the benefit of the rate drops. Generally, the interest rates on fixed-rate mortgages will be higher than the tracker ones because, in the former, you are aware of your monthly repayment. Similarly, a short term fixed rate mortgage will probably cost less than a long-term one.   

Remortgaging:  This allows you to change the mortgage deal and pay the existing mortgage by taking a new one, either with the same lender or a different one.  The benefits of remortgaging are better interest rates, in some cases where the property value rises or there is a change in the LTV (loan-to-value).   Remortgaging can offer flexibility in repayments according to your need.  If your mortgage is to expire and your property has not been fully repaid, it will be less expensive to remortgage rather than have the lender move to their default SVR (Standard Variable Rate).  With the pros come the cons – not getting a better deal, additional costs, fees and proof of creditworthiness. A professional remortgage broker will be able to assess and get you one of the best remortgage deals in 2021.

Interest payment:   Interest rates are calculated as a percentage of the balance of the mortgage. Most Buy to let mortgages are not regulated by the FCA (Financial Conduct Authority). Many are at an interest rate only.  This means that you pay the interest each month but not the capital amount.  This results in lower payments, but the capital amount will still have to be repaid at the end of the mortgage.  If it is a repayment mortgage, then a set amount of the mortgage balance will be paid monthly with interest on that amount.  This will be higher, but the repayment of your capital amount will also decrease.  

Conclusion: For first time buyers, these mortgages are attainable though they may be more challenging to obtain.  The pros and cons will have to be weighed – the security of a long-term investment, rental income and perhaps tax relief.  However, the possibility of having the property sometimes stand empty, not-so-good tenants, repairs, maintenance, and taxes will also need to be considered.  Most importantly, the property can be repossessed for failure to meet the repayments.  Hence, for buy to let mortgages UK, the invaluable advice and guidance from an experienced broker in mortgages is a must.