First Time Buyers as First Time Landlords

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A recent article highlights a growing trend on First Time Buyers in Edinburgh choosing to become landlords as opposed to buying property to live in.

I came across an article on the DJ Alexander website – This is how entrepreneurial Scots are climbing the first time buyer property ladder – and which was also featured in The Scotsman in December 2017. And it is worth a read.


So what is the idea?


Basically the article says that there is a trend forming amongst First Time Buyers, unable to afford their first home in Edinburgh, instead buying outside of Edinburgh as a Buy to Let investment property whilst they continue to live and rent a property in the city.


This is not a bad idea. However, as I shall point out below, it is not for every First Time Buyer and there are some drawbacks to consider.


Here is how it works...


You yourself don’t fancy living out of town and dealing with the daily commute but there is a rental market for out of town properties. So, instead of buying your first home for you to live in, buy your first property as an investment.


Get onto the first rung by becoming a landlord and then continue to rent in Edinburgh until the market changes or you can build up enough of a deposit (perhaps using the sale proceeds from the sale of that investment property) to get the property you want in Edinburgh.


Why is this idea a possible trend for buyers in Edinburgh?


2018 is starting very much as 2017 ended. With fewer properties than is usual coming to the market in Edinburgh it means that First Time Buyers (and indeed also Buy to Let investors) continue to have bid well over the Home Report values for properties and at closing dates where there can be as many as 15 buyers or more offering on the same property.


This has the knock-on problem for First Time Buyers because, as we have pointed out in several articles, what you have to remember is that your mortgage will only be a percentage of the Home Report Value and not the purchase price which means that every £ you offer over the Home Report Value is another £ you need to find from your savings.


So, it is not surprising perhaps that many First Time Buyers are being out bid at Closing Dates and perhaps losing hope of ever buying a property in Edinburgh and looking at alternatives such as this supposed trend.


Think outside the box – or, in this case, outside of Edinburgh


But here’s the thing... As a First Time Buyer you might be being priced out of the Edinburgh market at the moment but are still determined to get onto the first rung of the Property Ladder. Well in that case, Edinburgh is not the only place you can buy. Places around Midlothian and East and West Lothian and even in prices are not showing the same levels of interest from buyers and not experiencing the same price rises.


My number one tip for First Time Buyers in that situation is to consider looking further afield for your first home. So long as you don’t mind the daily commute and the knock-on costs of commuting, it might be a sensible idea to start looking at properties outside of Edinburgh. And those commuting costs might be offset by property prices being cheaper out of town and Council Tax being less than it is here in Edinburgh.


My second tip for First Time Buyers (as mentioned earlier) is to consider buying a new build property. The advantage here is that the purchase price is fixed and so there is no competing with other buyers at Closing Dates. New build properties are being valued at their purchase price and so your mortgage (whether that is 90% or 95% of the value) together with your deposit should be enough. And there are plenty of new developments both in and around Edinburgh that might be worth you considering.


So what are the possible drawbacks of this supposed trend?


  • Not many of the mortgage providers or lenders are keen to give buy to let mortgages to people who don’t already own a property themselves and so your choice of lender is likely to be limited.
  • The maximum buy to let mortgage is 75% of the value of the property and so this would mean you would need a deposit of at least 25%.
  • The interest rate on the mortgage is likely to be higher than it would be for a First Time Buyer mortgage.
  • There are additional costs to consider in paying letting agents to manage the property and having to meet the legal requirements a landlord has to comply with.
  • The rent you receive is taxable income.
  • When you do come to buy your first home that you want to live in, you might not then be eligible to get special First Time Buyer rates from a lender.
  • When you do come to buy your first home that you want to live in, you would need to sell the investment property beforehand if you wanted to avoid paying the Additional Dwelling Supplement (the tax of 3% of the price of the property).
  • There might also be a final tax bill for Capital Gains Tax when you sell the investment property.
  • That does sound like a long list of potential drawbacks. They are not meant to put anyone off from exploring the idea of becoming a “First Time Landlord” and if this is something you are considering, we would be happy to give you all the help you need to make that happen.


Our Top Tips


The problem we are experiencing in the Edinburgh Property Market at the moment is to a great extent the result of there being too many buyers chasing too few properties, Hopefully in 2018 we shall see that evening out so that properties will fetch prices more in line with their Home Report values. But that is only a hope.


In the meantime:


Can we help you?

Every year we help many first time buyers buy their first home. And we offer a very competitive fixed fee for first time buyers (terms and conditions apply). Find out more about our First Time Buyer Special Fee Offer.

Or download our Buyer Guide which will give you essential guidance and information about the first steps in finding and offering for a property and there are plenty of useful articles and information in the First Time Buyer section of our Blog.

If you are thinking of selling then why not find out more about our great value fixed fee estate agency service.

Passionate about property and providing great service at value for money.

Cameron Stephen
Partner with Cameron Stephen & Co. solicitors and estate agents, Edinburgh
0131 555 1296



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