Broker and lenders need to understand the challenges facing first-time buyers first-time landlords

We all know how challenging it can be for first-time buyers to purchase a residential property to live in. It feels as though there’s hardly a day goes by when I don’t see a story about how spiralling house prices, high interest rates and the large deposits needed to secure a mortgage means owning a home is becoming an increasingly distant dream for many people.

And yet there’s another group of first-time buyers who you don’t tend to read nearly so much about in the media; a group who’ve chosen to take a different approach to getting a foot on the property ladder – the first-time buyer first-time landlords.

Although it’s not a common route to property ownership, there are people out there whose first venture into the world of bricks and mortar involves buying a property solely with the intention of letting it out. Not only is it a way for them to enter the property market, it can also provide them with some extra income, which could come in very useful if they’re raising the deposit needed to buy a place of their own.

However, as well as the usual difficulties facing those trying to secure a residential mortgage, first-time buyer first-time landlords can also encounter additional challenges as they navigate the process of entering the rental market.

Securing a mortgage 

This is a classic catch 22 situation as first-time landlords are unlikely to be cash purchasers and so usually require a mortgage to purchase the property that’s to be rent out. However, as they don’t own a residential property, first-time buyer first-time landlords often struggle to secure the mortgage they need as they’re an unknown quantity for many lenders.

Also, buy to let mortgages often require a larger deposit and without existing equity in another property, it can be harder for them to raise the required deposit.

Understanding their legal obligations

With around 170 rules and regulations that must be adhered to, ranging from health and safety standards to tenants’ rights, owning a rental property for the first time can be a steep learning curve.

Lenders can be reluctant in approving buy to let mortgages for landlords who have little experience or no experience with owning a rental property.

Managing a rental property 

Managing a successful rental property includes everything from dealing with tenants to handling repairs and ensuring the property is up to standard.

Failure to do so could lead to high turnover rates, void periods or a failure to keep a property well maintained, all of which could affect rental income and mortgage repayments. Again, it’s this lack of experience that could make lenders wary about approving a buy to let mortgage application from a first-time buyer first-time landlord.

Taxation and financial planning

Taxation can often feel like a maze, and understanding the tax implications of rental income, allowable expenses and how to structure finances can be complex for first-time landlords.

Good financial planning ensures that a rental property remains profitable and that taxes are managed properly, so lenders may want to see that applicants have a sound grasp of these fundamentals, as an oversight could lead to financial difficulties further down the line.

Although the above is by no means an exhaustive list of all obstacles first-time buyer first-time landlords might face, it does highlight some of the more major difficulties they could meet. It also throws into sharp relief the importance of getting the right support they need when trying to secure that all-important first mortgage.

First-time buyer first-time landlords need extra education, guidance and understanding from brokers and lenders. A pragmatic approach to their needs, combined with a willingness to lend, can help them to meet their buy to let ambitions.

At a time when it’s difficult for many people to get on the housing ladder, supporting those who are willing to invest in buy to let for the first time can only be of benefit to the wider industry.

For adviser use only. Please note this content has been supplied by our lender partner and as such, is their responsibility. No party shall have any right of action against Legal & General in relation to the accuracy or completeness of the information in this article.