Even though the UK government has introduced an array of new taxes related to the buy-to-let market, there is still enormous interest from investors. Official statistics also show that the number of private lets will increase significantly in the future as the UK struggles to fulfil demand for both private and council housing.
In light of the 2008 worldwide economic collapse new regulations were brought in to protect the financial system going forward and ensure that mortgage applicants were able to fulfil their financial obligations going forward. There are a number of relatively easy ways in which you can improve your mortgage-ability because while some may complain that competition is not as strong as it used to be there is still great interest from the financial sector for those with a history of owning property and being able to keep up with their payments.
1) Become a residential homeowner first as this vastly increases the number of lenders who will be willing to lend to you.
You are likely to be more successful with a buy-to-let mortgage application if you can demonstrate the fact that you have owned residential property in the past as a homeowner. If you put yourself in the shoes of the financial institutions offering mortgages, someone who can demonstrate an ability to work within their own financial constraints is certainly more attractive than somebody with a chequered past who has not always been able to live within their means. The lower the risk of potential default from a customer the more attractive they become to the financial sector and the more opportunities and offers will emerge.
2) Keep a squeaky clean credit file with no late payments or defaults.
Many people underestimate the value of a clean credit file and see no issue with the late payment of, for example, mobile phone bills or other financial obligations. While not all late payments are flagged on your credit file those that are often focus on regular late payments as opposed to the amounts involved. Again, if you put yourself in the position of the financial institutions, why would you consider lending a substantial amount of money to someone who is not able to look after an array of everyday financial obligations. It is worth keeping a regular eye on your credit file to ensure that the information on there is accurate and keep up-to-date with any developments you may not be aware of.
3) The higher your earnings the larger choice of lenders you have and the better chance of deals. Most lenders operate within one of the following 3 benchmarks: Income less than 20k / income greater than 20k / income greater than 25k
It goes without saying that the higher your earnings the larger the pool of lenders that will potentially be available when looking for a buy-to-let mortgage. Average earnings in the UK are estimated in the regions of £25,000+ but it does vary significantly between different areas of the country. It is also worth noting that while higher earnings give you a more powerful position when looking for buy-to-let mortgages, you must also take into account your regular expenses and living costs. If you can demonstrate an ability to run a tight budget then this will work in your favour when you eventually apply for a buy to let mortgage. There are plenty of online calculators that give you an idea of the amount you might be eligible to borrow.
4) As a First time landlord, look for a standard-type rental property (aimed at a professional or family) rather than a multi let / student let or HMO.
The financial headlines often focus on successful investors looking towards multi /student let or HMO style private rental arrangements. In some cases these opportunities are made to look much simpler than they are because in reality the more people you have to manage the more expense, the more time and more potential issues going forward. As a consequence first-time landlords will gain more kudos with financial institutions if they start with a relatively simple one-on-one buy-to-let arrangement involving professional individuals or families. This will allow them to gain experience going forward and shows a level of maturity by the very fact they understand experience does not come overnight.
Over the years we have seen many buy-to-let investors overextending themselves in the good times only to get hit when the market trends change and the buffer between expenses and income is reduced dramatically. Where possible you should always have some “headroom” between your financial obligations and your income. It is also worth remembering that there may be occasions when your properties are not let on a full-time basis as well as the fact there are additional costs associated with finding new tenants. These are the things which first-time landlords will only really experience once they begin their buy to let career but as long as they learn by their mistakes going forward there is no reason why they should not be successful.
5) Consider buying with an existing landlord or an existing homeowner to increase the choices and deals available to you.
In the world of finance any decision to lend money to a customer depends upon a lot of different factors but one very important factor is experience. So, if you are venturing into the buy-to-let market for the first time, you will have limited practical experience even if you have researched the market and monitored the sector for many years. One way in which you can move beyond the “novice” tag and inject experience into your financial application is to consider buying a property with an existing landlord or an existing homeowner.
There are obvious pros and cons to any type of Joint Venture arrangement, but as long as everybody is aware of their role from the outset and there is a legally binding agreement then this will mitigate any potential future problems as much as possible. In some ways this kind of agreement should be seen as a stepping stone in your buy to let career and you should ensure that you learn as much as possible from your experienced partner.
Since the financial crisis of 2008 new regulations have been brought in to protect the financial system and ensure that only those able to fulfil their financial obligations are offered buy-to-let mortgage arrangements and other financial services. There is now more emphasis on an individual’s ability to cover their financial obligations going forward, demonstrate experience in a particular field, such as buy to let, and show sound financial management which will effectively reduce the risks taken on by the financial institutions.
There are still ways and means of climbing on board the buy-to-let ladder although you will need to do your homework, you will need to demonstrate an understanding of the market and above all start with the less complicated buy-to-let arrangements available today. As you build your experience, you will build up your reputation and more financial institutions will show greater interest as and when you require additional finance going forward. For free guidance, tips and advice from a leading mortgage expert, visit our dedicated Mortgages forum here and ask your questions for free to our resident expert, The Mortgage Broker Ltd.