Specialist lender Landbay has opened up its range of buy to let mortgages in a bid to attract customers who do not already own a home.
The lender now accepts applications on its buy to let mortgage range from borrowers who do not own an existing residential property.
Rates start from 3.55% but applicants must have at least a 25% deposit and a minimum annual income of £85,000 to apply.
David Hollingworth of mortgage broker London & Country (L&C) says this kind of product is rare, with most lenders requiring applicants to already own a home.
“It is quite unusual for lenders to offer buy to let products to first-time buyers and most will require that new landlords already own a property,” he says.
But there are some lenders that consider first-time buyers for buy to let mortgages, including specialist lenders, such as Vida Homeloans.
Mr Hollingworth says high street lenders Barclays and NatWest will also consider first-time buyers for buy to let, but the loan must be assessed against the stricter residential affordability requirements of each lender, rather than a standard rental income assessment.
Paul Brett, managing director at Landbay, says the lender is moving to fill a gap in the market and that it expects strong demand for the new product.
“The introduction of buy to let mortgages for first-time buyers will now give people in a higher income bracket an opportunity to purchase a property and rent it out as a credible investment,” he says.
“Tenant demand shows no sign of letting up, and new landlords are continuing to enter the market despite the more punitive tax regime. It’s essential therefore that we help to support a well-served market.”
However, Mr Hollingworth argues that the high minimum income requirement means Landbay’s products are likely to remain a niche option. The products are also only available through mortgage brokers, rather than direct from the lender.
Mr Hollingworth says the primary users would be first-time buyers who have been priced out of their local market, but wish to get a foot on the ladder elsewhere.
“The reason why some first-time buyers might look at buy to let is when they are faced with high house prices that effectively price them out of the area in which they live and work.
“Aside from simply wanting to invest in rental property to generate an additional income, first-time buyers might want to have some exposure to property in the hope that they don’t simply fall further behind and take a longer-term view toward buying their own property.”
‘Don’t rush into buy to let’
However, Mr Hollingworth says potential buyers should consider the costs of buying and selling a property.
In addition, if the property is located away from where the buyer lives, the cost of managing the buy to let from afar must also be factored in.
He says: “Of course, there are risks that need to be considered. Firstly, the costs of buying and selling a property can be significant so buy to let would typically be a longer-term investment not something in the hope of making a quick return.
“There can be other costs to consider as well, particularly if the property is some distance away.
“As with any buy to let there is a risk of the property having a void in the tenancy and that could eat into a first-time buyer’s income if they have rent and a mortgage payment to pay.
“It’s therefore likely to remain something of a niche and not something to rush into but could be an option for those that understand the pros and cons and make sure the numbers work for them.”