Can you buy to let if you don’t own your own home?

By Ben Gosling of Commercial Trust

Whether by choice, through circumstance or because of a mixture of the two, nearly one third of households in the UK today are rented rather than owned outright 1.

By Ben Gosling of Commercial Trust

By Ben Gosling of Commercial Trust

This 8.3 million households includes individuals who, for one reason or another, have not yet bought a home to live in, but who wish to get on the property ladder another way—by buying property to let.

This might be because they live in a prohibitively expensive area (for instance London, where average prices for first-time buyers are nine times average earnings 2) but can afford to buy elsewhere; it might be because they have not decided where they want to put down roots; it might even be that they do live in a home, but it is in someone else’s name. Whatever the case, it is becoming more and more common for non-homeowners to consider becoming first-time landlords.

Mortgage availability

First things first: can you finance the purchase?

If you are buying to let for affordability reasons, it’s unlikely that you will be able to afford to pay for a property with cash, even in the least expensive areas of the UK. Therefore, you’ll likely need to apply for a buy-to-let mortgage.

The good news is that there are buy-to-let lenders out there who will lend to non-homeowners; however, the choice is limited, as many require that you have at least one buy-to-let mortgage or rental property. Therefore, as a first-time buyer and first-time landlord, you might face stricter criteria (such as minimum income, age and term restrictions, loan amount and rental cover) and miss out on the most competitive mortgage rates.

When it comes to switching loan for the first time, however, you might have more luck. After 12 or more months’ buy-to-let experience, a few more lenders will open their doors to you.

Other options

You might know an experienced landlord who is willing to make a joint buy-to-let application with you. If so, more options should be available to you.

If you go down the route of joint property ownership, you will need to decide whether you and your co-owner(s) will be joint tenants or tenants in common. If you wish to be able to own a differently sized share of the property that doesn’t automatically revert to the other mortgage holder(s) if you die, then the latter arrangement—tenants in common—is the best arrangement, as joint tenants have equal rights to the property and cannot pass on their ownership as they see fit.

Final tips

It should be said that, if you are buying far from where you currently live, you should strongly consider employing a letting agent to manage your property.

Many landlords use a letting agent to market their property and find tenants, and then take on the day-to-day management themselves. While it is possible to do this from afar, many landlords—particularly inexperienced ones—prefer to be able to get to their property quickly, so that they can conduct inspections or respond to emergencies.

The full agency management route is more expensive, but it gives you the knowledge that your property is in professional hands while you are away. Just be sure to instruct an agent who is accredited by the Association of Residential Letting Agents (ARLA) or a similar trade body.

Another temptation long-distance landlords face is to buy a property without inspecting or appraising it (known in the industry as buying ‘sight unseen’). There is not a single successful property investor who thinks this is a wise idea! Even the most detailed property survey cannot substitute your own gut assessment of such an important purchase. If you truly cannot get to the property to view it, then see if you can send a trusted third party in your stead.

Finally, when applying for finance for your first purchase, remember that non-homeowner lending is quite a niche area of the buy-to-let market. All landlords can benefit from the services of an experienced buy-to-let broker to help find them the right mortgage product, but this is doubly true for landlords who do not yet own their own property. The first step towards property ownership is a crucial one, and you should never be afraid to ask for expert help.

 

References

  1. “Home Ownership and Renting in England and Wales.” Office for National Statistics. 28 Jun 2013.
  2. First time buyer gross house price to earning ratios [XLS]. Nationwide. Retrieved from www.nationwide.co.uk

 

Your home may be repossessed if you do not keep up repayments on a mortgage or another debt secured against it.

The FCA does not regulate most forms of buy-to-let mortgage

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