Securing a Mortgage Loan as a First Time Buyer
So, let’s say you’ve decided buying rental property and investing in real estate is the right investment for you, but you can’t completely afford the entry cost of a home on the UK market.
While you can spend time and save money to afford your venture, many potential buyers instead opt to buy property with a home loan through a mortgage.
However, home buyers purchasing their first property may encounter some issues when securing a mortgage for rental properties.
This is because buy to let mortgages work slightly differently than traditional residential mortgages.
- Buy to let mortgages require a bigger down payment, with a higher rate of mortgage payment each month.
- They’re also mostly interest-only, which means you will only pay the interest each month without touching the overall debt. You’ll need to pay the total amount of debt owed at the end of your mortgage term, either by selling the home, paying the cash another way, or borrowing money again by remortgaging.
- To make a good investment, you’ll also need your rent payments high enough to cover your mortgage repayments and get a positive cash flow, which may be difficult depending on what type of property you purchase. The lender may even calculate a debt to income ratio to see if your monthly earnings can cover the cost of mortgage payments – usually asked to be around 20-30% higher than monthly mortgage repayments in the UK.
However, likely the biggest stumbling block for first time home buyers is that some mortgage lenders will be unwilling to loan due to the higher risk involved.
Without buying a home already, you may have a lower credit score, too, which is something that may prevent you from securing a sizeable loan.
While this doesn’t mean it will be impossible to secure a loan with a low credit score, it does mean you may have a more limited choice, with potentially higher interest costs.
Can an Investment Property Be a Primary Residence?
If you opt for a buy to let mortgage and finally secure your buy to let, you may feel tempted to make the property your primary home at a later date. But is this possible? Can you live in your investment property?
Unfortunately, if you finance your purchase with a BTL mortgage loan, you cannot live in an investment property. This is because BTL mortgages are designed specifically for landlords, meaning you will be breaking the terms of your mortgage by living there.
This can have significant repercussions, including potential jail time.
To learn more about this topic, be sure to read our guide to “how long can you live in an investment property?”