First-time landlords offered record number of buy-to-let mortgages

If you’ve ever considered investing in property, you currently have more choice than in the past, with the number of first-time landlord mortgages available at a new high.

In July 2022, the amount of buy-to-let mortgages open to first-timer landlords hit 1,268 – the greatest on record from Moneyfacts.

Which? explains the mortgage options available to aspiring landlords and what exactly you need to understand before leaping in.


First-time buy-to-let hits new high

Over recent years, the number of buy-to-let deals for first-time investors on the market has increased rapidly.

In July 2022, there have been 929 mortgages available for novice landlords. By July 2022, this had jumped to at least one,268, an increase of 339 products, Moneyfacts data showed.

In exactly the same period, the typical rate for a two-year fixed interest rate mortgage has fallen by 0.36% for first-time landlords.

The average in July 2022 was 3.19%. This decreased to 2.85% by July 2022, and is currently at 2.83%.

Best buy-to-let mortgages for first-time investors

There are a number of attractive fixed-rate buy-to-let deals available for people hoping to buy their first investment property.

A fixed-rate deal offers you certainty over the amount of interest you’ll pay, and provides you defense against future rate rises. In the current environment, when rates of interest are required to climb over current years, so many people are opting for fixed-rate products.

Provider Initial rate Rate fixed until APRC Max LTV
Post Office Money 1.66% 30/09/2022 4.5% 60%
Virgin Money 1.69% 01/10/2022 4.3% 60%
Post Office Money 1.83% 30/09/2022 4.5% 75%
Virgin Money 1.96% 01/10/2022 4.6% 70%
Skipton Building Society 2.3% 30/09/2022 4.4% 75%

Alternatively, you could choose a variable rate or discounted mortgage rate, where your interest rate will fluctuate with market conditions.

Principality Building Society, for example, offers first-time landlords a price reduction of 3.1% around the lender’s standard variable rate (the default rate the lender charges if you’re not currently on the deal).

This means you'd currently pay 1.8% (exercising to an APRC of 4.4%), making it competitive to fixed-rate deals.

What first-time landlords have to know

If you’re considering investing in buy-to-let, odds are you’ve already bought your own house and therefore are acquainted with the home-buying process.

But buying a good investment property differs from buying a residential home in a few key ways. Here’s what you ought to know.

1. Affordability is calculated differently

When you’re buying a home, the lender is usually interested in whether you earn enough to pay for the borrowed funds.

For a buy-to-let mortgage, the lending company will factor in whether the rental income that your property generates can cover the mortgage – and you generally need to show coverage with a minimum of 125%, if not 145% in some instances.

As such, you have to choose your property carefully and make sure you completely understand just how much income it’s prone to generate, considering the possibility it will likely be vacant between tenants.

2. Interest-only deals are common

With almost all residential mortgages, you have to both repay the loan and interest each month, to ensure that with time your loan amount grows smaller.

But many buy-to-let deals are interest-only, meaning you don’t make any repayments; your monthly bill is only going to cover accrued interest.

Interest-only loans make for much cheaper regular bills, but also include some drawbacks.

3. Mortgage interest tax relief is changing

When you own a buy-to-let property, you can deduct the eye you pay from your taxable rental income, but this relief has been phased out.

From the 2022-18 tax year, landlords have only been able to deduct 75% of the mortgage interest using their income, which portion will decrease until its eliminated in 2022-21.

Instead, you’ll have the ability to claim a 20% tax credit in your mortgage interest, disadvantaging higher-rate or additional-rate payers. We let you know that it really works within our guide to mortgage interest tax relief.

4. Stamp duty rates are different

If you’re buying a good investment property, you’ll need to pay a 3% surcharge on the house price, which is charged on top of the normal stamp duty rates.

The sums can be significant. Say you were buying a house worth lb400,000. Like a first-time buyer, you’d pay lb5,000, while all other house buyers would pay lb10,000 – but a buy-to-let investor would need to pay lb22,000.

You can function your bill with our buy-to-let stamp duty calculator.

5. You might want to pay capital gains tax when you sell

If you make a profit when you sell a property that’s not your main home, you may want to pay capital gains tax.

In the 2022-19 tax year, you can generate lb11,700 before capital gains tax kicks in. The rate you pay is determined by whether you’re a basic-rate or higher and additional-rate payer.

We let you know that much you may need to pay in our help guide to capital gains tax on property.

6. Study up on your obligations

As a landlord, you've got a responsibility to supply your tenants having a safe home, which might include carrying out repairs towards the structure, maintaining heating and water systems, ensuring fire and gas safety checks are carried out, and other maintenance and safety activities.

When new tenants move in, you’re also necessary to have an Energy Performance Certificate, and also to execute To Rent checks.

In some areas, you might be necessary to register with the local council, and there are additional requirements if your property qualifies as a HMO (house in multiple occupation).

We cover these rules, and much more, in our help guide to being a landlord.


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