Q I have a question about mortgages. I am currently working and renting in London, but I would like to purchase my own property. This is becoming increasingly impossible as I am single and earn a low wage.
A chance I currently have is to buy a studio flat in Romford, Essex, where I grew up, through a shared ownership scheme. However, I am not ready to move back just yet, as I am happy renting a shared house close to work in London.
Ideally, I would like to purchase the studio flat and rent it out until I am ready to move back to Essex in a few years’ time. I know that this is not an option with the shared-ownership scheme, but my parents might be able to offer assistance to help me buy the property outright. If this is the case, is there a mortgage available to first-time buyers that will allow the property to be rented for a short period, of, say, three years, before the buyer moves in? JS
A The whole point of the shared-ownership scheme is that it enables people who can’t afford to buy a property to get on the property ladder by buying a part-share and paying rent on the rest. So even if help from your parents would mean that you could buy a property outright, a housing association would be unlikely to let you.
If you are able to buy a property but do not intend to live in it and so will rent it out, you will need a buy-to-let mortgage. But while, as a first-time buyer, that it possible, it’s not going to be easy. First, of the 80 buy-to-let mortgages listed by Moneyfacts, only 25 are available to first-time buyers. Most lenders will lend only to people who already own their own homes or another buy-to-let property. Even lenders who are prepared to lend to first-time buyers for a buy-to-let may ask more of a new borrower. Although most of the buy-to-let mortgages available to first-time buyers require a deposit of 25% of the value of the property, quite a few want 30% and some ask for 40%. The type of property you buy can also affect the size of deposit you need to provide, as new-build property normally requires a higher deposit.
All buy-to-let lenders expect rental income from the let property to cover the mortgage repayments by at least 125% but, increasingly they are moving this up to 140% of the mortgage payment.
Another thing that you need to consider is whether, when you decide to move into the flat, you will be able to afford to convert the buy-to-let mortgage to the residential one you’ll need once you become the owner-occupier. If your earnings aren’t enough to meet the affordability test you need to meet on a residential mortgage, you could end up having to sell the flat. If you make money on the sale it could mean a capital gains tax bill.
Rather than trying to buy now – given the amount of cash you’ll have to put towards the purchase of a buy-to-let – you might be better trying to save as much as you can towards a deposit on a property in Romford in three years’ time.
