There comes a point in most successful people's lives where they consider buying rental property as a way of diversifying their assets and building an additional income stream. Are you a first time buyer who is interested in purchasing a rental property? If so, you may be wondering what the best way to go about it is. There are many different types of mortgages available, and it can be difficult to decide which one is right for you. In this blog post, we will discuss the best buy to let mortgages for first time buyers and give you some tips on how to get started! This is the first in a series discussing the process of buying rental property end to end.
Finding a Property
The first step in the process is finding a property that you are interested in purchasing. There are many different factors to consider when choosing a property, such as location, size, and type of property. You will also need to research the local rental market to determine how much rent you can charge and what the demand for rental properties is like in your area. Finding the best buy to let mortgages for first time buyers is often more a case of discovering the right property. It's a little bit of a balancing act: you will want a property in a strong, well-developed area so that you can be sure of consistent demand. However, these areas naturally command the highest prices, which means that your initial outlay will be much larger. This often means that even with the higher rents that these properties command, it can often be difficult to make a reasonably good yield.
It also means that there is less scope for capital growth. What does that mean? Well, in the ideal scenario, you are hoping for two types of return. A consistent yield from the rent you receive per month, and an appreciation in the property that will allow you to either refinance and take money out at a higher valuation, or sell down the line for a tidy profit.
Limitations: what are the best buy to let mortgages for first time buyers?
The best buy to let mortgage for first time buyers is one that offers a low interest rate and a reasonable loan-to-value ratio. The loan-to-value ratio (LTV) is the amount of the property's value that you will be borrowing from the bank. For example, if you are purchasing a property for £100,000 and your LTV is 75%, this means that you will be borrowing £75,000 from the bank. The lower the LTV, the less risk for the lender, and therefore the lower the interest rate will be. A typical buy to let mortgage will require first time buyers to put down a 25% deposit.
There are many different types of mortgage available, so it is important to do your research and compare different offers before deciding which one is right for you. You should also speak to a mortgage broker who can help you to find the best deal and answer any questions that you may have.
How do you go about getting the best buy to let mortgages for first time buyers?
The process of getting a mortgage for a rental property is similar to the process of getting a mortgage for a residential property. However, there are some additional things that you will need to take into account. For example, most lenders will require you to have a minimum income of £25,000 per year in order to qualify for a buy to let mortgage. They will also take into account the rental income that you are likely to receive when assessing your application.
It is important to remember that a buy to let mortgage is a commercial loan, and therefore the criteria that lenders use to assess applications are slightly different. In most cases, you will need a larger deposit than you would for a residential mortgage (typically 25% as mentioned above), and the interest rates are usually higher. However, this is offset by the fact that you can claim certain expenses against your rental income, which reduces the amount of tax that you have to pay. It's a little bit of a grey area, but anything that constitutes reasonable expense in the upkeep and maintenance of the property can be tax deductible.
What are some of the things you need to consider when buying a rental property?
There are a few things that you need to take into account when buying a rental property: the location of the property is important. You will want to choose an area with high demand for rental properties, as this will help to ensure that you are able to charge a competitive rent. The size and type of property is also important. You will want to choose a property that is large enough to appeal to a wide range of potential tenants, but not so large that it is difficult to maintain.- The condition of the property is also something you need to consider. Obviously, you will want to choose a property that is in good condition and does not require any major work. However, one that has recently been fully renovated likely doesn't represent good value.
Personally, we like to go for properties that are structurally sound but in need of touching up. In general by doing light renovations here, you can put up for rent a property that is more than the sum of its parts, and worth more than the combined sum you paid for it plus the renovation. The money isn't necessarily made in the rate you get, which means that it isn't just about finding the best buy to let mortgages for first time buyers.
To help you navigate these considerations and make informed decisions, it's beneficial to work with experienced professionals like a reputable property manager. They can provide valuable insights into high-demand rental areas, property maintenance, rental building management, and tenant attraction strategies.
How can you make your rental property stand out from the competition?
In the current rental market, there is very little you need to do to stand out! Properties are being snapped up almost immediately, and there are plenty of anecdotes about people not even being able to get to see the property before it is gone. That being said, as simple as it sounds it's actually pretty easy to stand out simply by doing your job well. Make sure the property undergoes necessary maintenance, treat your tenants well and you're already ahead of a whole load of existing landlords! This might seem like it cuts into both your time and your margin, but this is a multi-decade long play, and your priority should be to build something sustainable. In fact, one sensible way of looking at it is hoping to break even on the first property and use it as experience for further expansion: anything beyond that is a bonus!
So, the best buy to let mortgages for first time buyers: where to get the mortgage? In 2021, Natwest, BM Solutions and HSBC came out on top as the best rates whilst also providing a solid service. Note that you will ideally want to stick with one mortgage provider, as once you have a relationship or have managed to not lose one loan, it makes it easier when coming back for the next! You should take extreme care to model out scenarios when deciding which mortgage to go for: interest only, for example mean that you are never paying down the principal, and should have enough spare capital to be able to pay the mortgage for some time yourself, should you find yourself without a tenant. Finally, by managing these on your Strabo dashboard you will not only be able to track live property valuations, but also historical and forecasted yield on your investment in one place. This can make it far easier to plan for not only your first, but second, third and more too! Check it out by signing up at the foot of the page. As always, we'd love to hear more about the first step in your investment property journey! Finding the best buy to let mortgages for first time buyers is the first step in the investment property process, and we'll be continuing the series with the next steps next time!