The cross-over between first-time buyers and buy-to-let are growing, Tony Fullbrook explains the issues to consider in this sector of the market.
The appetite for property ownership remains evident among first-time buyers (FTBs) and this can come in more than one form.
Buy-to-let mortgages for first-time buyers are hardly a new phenomenon but their number and profile fell significantly in the post-credit crunch years.
This was understandable given the economic uncertainty, lack of funding and a shift in attitudes towards risk.
It’s no secret the lending community as a whole deemed lending to first-time buyers on a buy-to-let basis as a high-risk proposition within that particular financial climate.
Much of this revolved around regulatory concerns over FTBs potentially using BTL as a soft entry into the housing market and occupying the property themselves.
So what has changed?
The introduction of new mandatory affordability tests for BTL borrowing on 1 Jan 2017 – as per Prudential Regulation Authority (PRA) requirements – means that borrowers are now subject to more exacting affordability and rent coverage assessments which have served to reduce the affordability gap that may have existed before.
While this remains a relatively small part of the wider buy-to-let market, it has taken significant steps forward in recent times and there is still room for considerable growth.
At the time of writing, research from Moneyfacts suggested there are 23 lenders offering first-time buyer buy-to-let mortgages.
This is a fraction of the numbers seen in the past but represents a vast improvement on recent years.
Barclays recently extended our buy-to-let range to allow applications from first-time buyers and non-owner occupiers. This change is aimed at offering an alternative way of helping first-time buyers get onto the property ladder and for non-owner occupiers who might be looking to remortgage an existing investment property.
Not taken lightly
But becoming a first-time buyer landlord is certainly not something which should be entered into lightly. There are a number of considerations for borrowers to take into account and for intermediaries to realise when advising on such a product.
- All potential options need to be researched and fully understood – this is evident across all areas of borrowing, although it is particularly important in light of the next two points
- Being financially prepared is key – there can be a number of fees involved – stamp duty is payable for those wishing to purchase a FTB BTL – and there are potential rental voids to consider. Not to mention present and future tax considerations. These are in additional to any initial investment, immediate works to undertake and ongoing maintenance costs.
- The potential impact on a client’s future residential mortgage application – with an outstanding debt already in place it’s important to realise how this could impact any future borrowing.
These factors highlight how borrowers need to enter this market with their eyes wide open, ensure sufficient due diligence/homework is completed and – most importantly of all – that good, professional, specialist advice is sought for mortgage and tax purposes.
This final factor smacks of opportunity for those intermediary firms able to make the most of the growing variety of options slowly opening-up for first-time landlords through to professional portfolio landlords.
And I expect more opportunities to present themselves on the back of this forward momentum in 2018.