Importance of being a first time buyer?

ryandeean

Hi all, appreciate it if anyone can give me any advice or guidance on this.

I'm a graduate who is considering capitalising on the house market dropping by buying a cheap property in the North East of England (where I am from). The property will cost me around £40,000 and I have a deposit of £4000. My salary is around 26k a year and I have no outstanding debts (other than my student loan).

The thing is I don't plan to live in this house. I work down in London and plan to put tenants in the house. Trying to get a buy to let mortgage in my current situation will be difficult, but would I be shooting myself in the foot by making this purchase my first time buy? I don't want to screw myself over in three to five years time when I want to buy my own home to live in.

Any advice much appreciated.

techno12

Go for it

You're applying for a laughably small mortgage, even with no tenant it's only £200 a month or so. I'm a FTB saddled with a 148k mortgage on my flat, paying close to a grand a month (though the recent rate cut helped as I'm on a tracker), and I earn only 50% more than you - so pretty jealous you can nab a place so cheaply!

So, if you get a tenant in, you're quids in.

A 36k mortgage is nothing!

opinions4u

The two key things to consider are:

1) Would you get a better first time buyer deal further down the line if you had to disclose a buy-to-let mortgage? Are first time buyer deals actually that good anyway in the current market? Could that market change favourably in future and you miss out?

2) Are you absolutely sure it's a bargain?

The points I raise in (1) I would answer along the lines of go for it as a first time buyer because I don't think you'd get a 90% buy to let mortgage (the resident brokers may correct me on that) and first time buyer deals aren't particularly special anyway. Take the risk that ftb deals might improve as the market returns to normality - but read my point "one final consideration" below.

The second point above is the underlying key to the decision to buy a property for investment purposes. Is the house really worth £40k in today's market? Why that low? Is it simply that the area has always been low value? If so, are you sure property values will come out of the slump there? What happens if other houses on the street get repossessed in the recession and then vandalised when empty? Yours may also be empty? I used to be involved in the housing market in Salford 7 years ago - streets of terraces like this were being sold to the developers for £100k! Adverts "3 houses for £10k" were actually seen!

The short term future for the housing market is probably down another 10%-20%. The recovery is also going to be interesting. The success of the market over the last 12 years has been driven by mortgage lenders expanding their loans in to buy-to-let and sub-prime. This money has predominantly come from wholesale lenders who are the people who chose to stop lending to the banks altogether. Even if this money returns, there is a key question: "what bank would want to rely on such funding in the future?". Assuming banks contract their lending in a way that removes reliance on these funds from the wholesale lenders, that will mean less money going in to the housing market which will reduce the amount of growth potential in residential property in the future. While there is still a shortage of housing stock, economic migration is falling and there appears to be government intent to reduce control it further. Demand in the medium term may not be as high as experts previously thought. Housing may not, for the next 5-10 years, be the fantastic investment it has been previously.

One final and vital consideration - you will effectively be applying for a mortgage on a property in the North East as a ftb. Any underwriter worth his salt is going to ask "why are you commuting 400+ miles a day?". They will know that you plan to rent the property out and may well decline the application after you have incurred a valuation fee.

So tread carefully!

_Andy_

If you're buying it to rent it out, it's a buy to let mortgage.

herbiesjp

And if you get a residential mortgage knowing you are going to let it out, it is fraud