Buy To Let Properties For First Time Buyers 2024

There’s been a spike in demand over the years for people who want to buy a property and rent it out, especially first-time buyers. Buy-to-let mortgages allow anyone to do that, even if you have a bad credit score and/or don’t have any income.

Some lenders will approve a buy-to-let mortgage based on the property rental income alone. Usually, this is worked out by charging rent at 125% of the monthly mortgage payment.

High street lenders won’t entertain this and would be looking for new landlords to have an existing income already coming in. This is done to ensure the interest-only payments on the mortgage don’t fall behind.

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Is 2024 a good time to buy?

According to Nationwide’s monthly report for May, house prices have declined for the third consecutive month, indicating the housing market is losing momentum. This, therefore, could be a great time to buy because when the market does pick up, there’s an increase in the home value, which in turn increases your equity. That can then be used to access further finance for future purchases, or for property upgrades.

Regarding the economic forecasts, economists predict that house prices will still rise in 2021, just at a more modest rate so don’t expect a sharp increase.

However, there is a sting in the tail as you can’t just buy a property, approach a property management company, pay a fee and have a tenant move in.

It doesn’t work as simple as that.

How a buy-to-let mortgage works for those with bad credit

The first thing is that you’re expected to have an asset, usually as a homeowner. You’ll have an existing mortgage with no default payments. The main banks would love that scenario.

When you don’t have a mortgage, though, that’s a problem. It’s resolved by using a specialist lender who is only interested in financing the property based entirely on its value and on the rental income you can get for it.

Some won’t do a credit score; some will check your financial background and make an offer applicable to how risky they feel you would be to their business interests. The lender’s interest is only to be repaid the loan in its entirety and with profit. They dislike repossessions as much as the next person, but they need to know that they’re lending you an amount that can be recovered.

What types of buy to let mortgages are there?

For first time buyers with bad credit, special deals are available in the subprime market. Some are for residential properties, and others are for commercial units.

With the tax changes lurking and affecting existing landlords, many are moving from residential to commercial units. For commercial buy-to-let mortgages, lenders may prefer to see that you’ve some experience in property management. For residential properties, though, there’s only really one primary concern you need to know about, which concerns houses with multiple occupants (HMO). Think about student accommodation. If you plan to lease the property out by the room rather than the entire property, many leading lenders won’t entertain the idea. Instead, it’s a commercial lender you’d need to work with as the terms and tenancy agreements will be different, and it is a bit more complicated than renting out the property as intended.

Whilst tenancy agreements are an issue for landlords and not so much for finance, there can be implications on the type of mortgage product you can get, depending on how you plan to lease the property. HMO is one thing you cannot get wrong because it can cause you to apply with an unsuitable lender. Since every lender will credit score you, it will impact your rating, which in turn hikes the interest rates future lenders quote you, and that will eat into your profits.

If you want to lease a family home, it’s a residential buy to let mortgage you’d want to inquire about. You need to speak with a commercial lender for cafes, pubs, shops, food premises, stores, and offices.

Commercial mortgages attract a higher rate of interest, a higher access fee and a higher deposit than most residential buy-to-let lenders will require. If you have no existing mortgage and little assets to use as security, it’s unlikely the commercial sector would be an option. Existing landlords are moving more towards commercial leases because they’re more secure and attract responsible tenants. With the help of Companies House, they can get a good feel for their tenants’ financial situation before entering into a tenancy agreement.

Property managers consider whether the applicants can afford the rent for residential lettings without compromising living standards. There is still a risk involved as a tenant may not pay, which is the obvious risk. However, there’s also the fact that the landlord is the property owner and, therefore, is legally responsible for all repairs and maintenance. That cost needs to be factored into the rents you charge.

How much of a deposit might you need?

This is another area that’s been rising steadily in recent years. 80% LTV mortgages are available. Some lenders will go higher, but if they do, you may need a steady income and not solely rely on the rental income to pay the mortgage. Remember that your mortgage will still need to be paid if you’re without a tenant. That will come from your profits, as no lender will want to wait until you get around to leasing the property.

What not to expect with bad credit is to renovate to rent…

Mortgages are homeowner loans and, therefore, are a secured form of finance. For your property to be considered a home and therefore financeable, it must be inhabitable. That means it needs to have a working water supply, utilities, washing facilities and a functioning kitchen. If any of those aspects are not working, the property will need some renovation work done it to bring it up to living standards.

That will cost, and if you’re approaching a lender with a bad credit history, they will want a larger deposit to extend your finances. The amount you’re offered will be based on the property value, so you will find it challenging to get a home loan to renovate a property because it will increase the loan-to-property value ratio. For a first-time buyer to access a buy-to-let mortgage on a residential property with a bad credit score, you’d want a higher deposit, usually around half the total amount you need.

If renovation is what you plan, then commercial lenders would be a more viable financing route you could take. There is also bridging finance available to those with a poor credit history. However, this is a higher charge and best not relied on as a source for capital investment but more for cash flow purposes should you take on a renovation project or find that your rental doesn’t quite go to plan and you need a short burst of cash.

First Time Home Buyers With Bad Credit

If you are one of the first time home buyers with bad credit, you should consider cheap houses for sale in Newark that you can save up for to buy without a mortgage.

To summarise:

An adverse credit history will not prevent you from getting on the property ladder. A lack of income will. If that’s what’s happening, there are financing options for first-time buyers that can help you get onto the property ladder using a buy-to-let mortgage.

There are many ways to get onto the property ladder and many more that can be considered a barrier, which, in most cases, can be worked around by working with the right lender.


Can first-time buyers repay a debt to families with a home loan in addition to their mortgage?

If the first-time buyer meets the secured loan criteria, with the help of the home loan bad credit calculator, they can determine how much money they can get and what the payments will be.