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Evening Standard
Evening Standard
Business
Charlotte Duck

Mortgage clinic: ‘I’m self-employed and a first-time buyer. How much could I borrow to buy a rental property?’

Price is right: Julie Ford may need to consider flats away from pricey London to make buying a reality

(Picture: Daniel Hambury/Stella Pictures Ltd)

Julie Ford, 46, is a consultant for the private rented sector who wants to invest in a buy-to-let property herself.

She currently rents a three-bedroom house in Clifton, Bedfordshire, with her partner but would be buying the property as a first-time buyer in her name alone.

“For me, buying somewhere to live in doesn’t suit my lifestyle. I travel a lot for work and I don’t want to be responsible for paying out on a mortgage and the maintenance of a property. With an investment property, the mortgage and any maintenance will be covered by the income I get.”

Ford also sees becoming a landlord as a way of safeguarding her future.

“I don’t think there will be a state pension by the time I’m of pensionable age, so I see this property as an investment.”

In April, Ford will have two years of sole trader accounts and would like to know what she could afford to borrow. Her original plan had been to buy somewhere in 2025 when some investment bonds are due to mature and she’d have a £13,000 deposit, but she is interested to know if she could buy after April, with a £10,000 deposit and two years of accounts.

“What would be my best option and what can I afford in both scenarios if my income stays roughly the same?”

The details

  • Deposit: £10,000 or £13,000
  • Net profit: £33,800 (2021-2022), circa £39,000 (2022-2023)

The advice

Matt Marsh, founder of RBM Solutions, says:

Being a first-time buyer, first-time landlord in itself is not a problem — although it would potentially restrict the lenders and Ford would need to pass income and HAMBURY DANIEL rental income assessments. Deposits on buy-to-lets typically need to be 25 per cent of the purchase price so, based on a £10,000 deposit, that’s £40,000 or £50,000 on the £13,000 deposit.

This is a very ballpark figure and there are other variables to consider. A few lenders will do more than this, but would need more assessment on affordability. The figures aren’t too low if Ford is looking at smaller returns in an area she isn’t familiar with, but there is always more danger in buying in a different part of the country. Furthermore, the sum of £10,000 or £13,000 needs to cover the deposit, solicitors and other costs.

Ford would also need to have a reserve pot to cover things like vacant periods, maintenance emergencies and items such as inventories and gas safe certificates. If a 25 per cent deposit can be achieved on a more expensive property in an area she’s more familiar with, this would be recommended.

However, on a property of even £200,000, I appreciate this is a substantial increase on the deposit — circa £50,000. Alternatively, if Ford bought for herself on this income alone, lenders would typically average the previous two years’ accounts, with most lenders offering about 4.5 times an income (£163,800 on figures given), depending on affordability. Ford’s idea is sound and achievable but not without many areas to be considered.

Adrian Anderson, of Anderson Harris, says:

Attempting to purchase an investment property as a first-time buyer with a £10,000-£13,000 deposit is not going to be straightforward. Most buy-to-let mortgage lenders require a minimum 25 per cent deposit, and a minimum property value of £50,000 and a £12,500 deposit.

The most likely scenario is that Ford will have to consider purchasing a property when her investment bonds mature, and she has £13,000. I note Ford’s net profit from her business has been increasing, which is what lenders like to see. If Ford’s income stays roughly the same, it should be sufficient to fit the minimum income criteria of the buy-to-let lenders (subject to the usual affordability testing).

Ford should also be aware that there will be a limited number of banks that will consider her application as most lending on a buy-to-let basis will expect the applicant to own a main residence. As a first-time buyer applying to purchase an investment property, there will be extra hoops to jump through; for example it’s likely that the lenders will need to factor in Ford’s monthly personal outgoings, including her rent.

In terms of preparing to make this investment, Ford should ensure she has a strong credit score and a limited number of other contractual outgoings. I can see the appeal of safeguarding her future by making an investment for long-term capital growth and hope it works out.

You should seek independent advice from a qualified professional before acting upon any information contained in this article

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