Lending advice for first-time landlords
Strong rental demand coupled with rising house prices and low interest rates have ensured that the UK Buy-to-Let market has remained extremely competitive in recent times, and this trend looks set to continue for the foreseeable future.
This is an area of the property market that appeals not just to younger landlords, but increasingly to older borrowers as well. Pension reforms due to take effect in April will allow the over-55’s to withdraw their entire pension as a cash lump sum, and it is likely that some will choose to use a portion of their fund to invest in a buy-to-let property, in order to generate an income into retirement.
Recently one of our clients decided on exactly this, but as a first-time landlord they required advice on the most suitable lender for them, and approached L&C for help.
The couple had a deposit of 40% to put down, a portion of which came from their pension lump sum. The rental income they expected to achieve from the property covered their anticipated mortgage payments with an adequate margin to satisfy lender requirements.
In addition the couple had sufficient personal income and savings to cover their mortgage payments on both their residential and investment properties in the event of rental voids. This is an important budgetary factor that any potential landlord must take into account when considering taking on an investment property.
With no proven track record of owning a rental property however, some banks and building societies are reluctant to lend to first-time landlords, and several have withdrawn from this part of the market completely. The couple, who are retired, faced additional limitations, as their sole source of income came in the form of pensions - which can be an issue for some lenders.
Many lenders also have age restrictions, so while some are more flexible, most typically lend to a maximum age of 75. The couple did find the length of their mortgage term was limited as a result, but were happy with the restrictions imposed on them.
Despite the limited choice of lender available to them, their mortgage adviser was able to place the application with a mainstream buy-to-let lender. The couple were able to secure a competitive fixed rate, providing them with stability in their monthly payments for the first 2 years of their new venture.