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Getting Off The Starting Blocks in Property Investment

buy to let Nov 10, 2020

THE QUESTION

I've had three very different opinions from three brokers on a First-Time-Buyer-First-Time-Landlord BTL mortgage.  I've got JV experience (through a Ltd Company), I don't have a mortgaged property (I rent at present), I’m recently divorced and have a smallish cash pot.

I can't afford to buy where I live, but this is where my kids go to school, so I want to stay nearby.  My aim is to get on the ladder in a different area to build up the portfolio - and income.

Here's what I've been told so far:

  1. Go into another JV deal in my name (not Ltd) for 6 months then apparently lending opens up and I can go for another BTL and build up my portfolio
  2. I can borrow up to £500K, so long as yield is around the 4% mark
  3. I can borrow up to £300K as lenders will assess me as on a home owner basis. That the property should be as far away from where I live as possible, to prove that I don't intend to live in it (which makes managing the property myself difficult while I find my feet).

What’s your advice?

THE ANSWER

Here is the issue, mortgage lenders like and trust normality, but fear and distrust the unusual.  The normal thing they expect people to do is to first buy the home they want live in, before they buy any more properties to rent out.  So a FTB-FTL situation is abnormal and they distrust the motives behind it.

What they suspect is that you may be manipulating the lower income requirements of a BTL mortgage to get a place to live in well beyond what you could borrow on the stricter main res income requirements.

This is why almost all mortgage lenders will have a blanket ban on lending to you, it saves them wasting precious underwriting time drilling down to establish if your motives are honest or devious.

The very few lenders that will consider FTB-FTL will underwrite it exactly like a main res mortgage, based purely on your personal income, ignoring the rental income, to ensure you get no advantage from being able to borrow more than you would if you were borrowing for the home to live in yourself.  You will likely find that there is a minimum income threshold of £20,000 that you will need to prove you earn to make this achievable with these lenders, It doesn't need to be any more complicated than this.

On the basis of the above income requirements, 2 & 3 sound non-sensical and seem more like brokers trying to bend rules to generate a fee rather than being upfront and honest about you trying to run before you can walk.

Option 1 has some credence, but requires you and the other JV partner to tie your credit ratings together as you will be financially linked by your joint mortgage.  If one of you screws up your credit rates, the other’s is screwed too.  Most people would consider this too high a risk to take to give someone a leg up to buy their first property, (family aside, probably).

If you are looking for a property that needs refurbishing, you may find that a better option would be to use bridging finance and then get a mortgage when you have improved the value of the property.  Alternatively, build up your cash-pot with some smart flips.  There are many ways to get into property investment.  Check out some of the options on this website.

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