As first-time buyers, can we take out a buy-to-let mortgage?
05-01-2017
A reader is considering a buy-to-let property near Sheffield. Photograph: Christopher Thomond for the Guardian
We rent in Oxfordshire but want to buy property near Sheffield to let until we move there
Q My partner and I have been renting for the past seven years. We live in a salubrious part of Oxfordshire in a house we would never be able to afford to buy without a lottery win. We’ve been lucky enough to have as landlords a wealthy elderly couple, who let us pay probably half the going rate for the area on the unspoken proviso that we don’t bother them about minor repairs and keep the place in good order. It suits us all fine.
This has allowed us to save up a small pot over the years and I recently inherited around £100,000 from my grandmother. This gives us a cash deposit of roughly £140,000 to buy somewhere, but with a joint income of around £40,000 and the average two-bed around here selling at the half a million mark, we’re going to have to start looking elsewhere.
My partner is originally from Sheffield. Her move south was only ever supposed to be for university but now, 12 years later, she’s still here but pining for the peaks. So we’d like to buy a house in that area while the prices are still within our grasp, but not live in it just yet (we’d be mad to move from here so we’re going to enjoy it while we still can).
Ideally, she would match my deposit sum with a mortgage (and would be the sole name on the mortgage) so that the house is officially owned 50/50. We’d then like to rent it out until such a time when we decided to move into it ourselves.
Is this possible and, if so, would it officially count as a buy to let? My partner’s income is roughly £17,000, so would she even be able to match my deposit? LB
A If you were looking at getting a residential mortgage, the answer to your last question would be, no, your partner wouldn’t be able to get a mortgage of £140,000 (to match your cash deposit) on earnings of £17,000 a year. And even if her income did qualify her for a mortgage that size, she wouldn’t be able to take one out in her sole name if you are to be joint owners of the property.
Most mortgage lenders insist that all joint owners are named on the mortgage as well as at the Land Registry. But that would work in your favour because your joint income of £40,000 would be taken into account, which would improve your chances of getting a mortgage of £140,000.
However, as you are looking at a buy-to-let mortgage because you won’t be living in the property you buy, the answer could be, yes, your partner might be able to get a mortgage, but again it would have to be in joint names if you are to be joint owners of the property.
The fact that you will want to be borrowing 50% of the value of the property will be a big advantage when looking for a buy-to-let lender. The maximum buy-to-let mortgage most lenders offer is 75% of the value of a property although some set this maximum as low as 60%. Having a relatively small mortgage also works in your favour in relation to the “rental coverage” stress test that lenders have to apply when assessing applications. This means lenders expect the rental income you get from a rental property to cover the monthly mortgage repayments by 145%. So if your mortgage repayment was £1,000 a month, the monthly rent you received would have to be £1,450.
What works against you is the fact that you are first-time buyers because it reduces the number of buy-to-let lenders who might be prepared to lend to you to around 20 (out of the 76 listed by Moneyfacts). Around half of those prepared to lend to first-time buyers also take other earnings as well as rental income into account when assessing affordability in mortgage applications.
But whether you can get a buy-to-let mortgage or not, you should seriously ask yourselves if you want to be long-distance landlords with all the responsibilities that brings. Perhaps you should concentrate on finding somewhere affordable in Oxfordshire even if it means compromising on where you live. Having looked on Rightmove, it seems that even in the expensive city of Oxford, there are plenty of two-bedroom houses for sale for less than £280,000. But wherever you choose to buy, you’ll also need to factor in the costs of buying such as legal fees, stamp duty and furnishing the property.
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