Figures from mortgage broker Commercial Trust reveal that for every year since 2015, the 20-29 and 30-39 demographics have both seen year-on-year rises in the proportion of all buy-to-let mortgage applications.
This suggests that today’s generation of young people want to enjoy the flexibility of renting themselves while benefiting from the UK’s strong property market. Becoming a young property investor can be a challenge in all kinds of ways, but it is possible.
Here are some tips to help.
Understand what mortgage lenders want to see
In blunt terms, mortgage lenders want to see clear proof that you will be able and willing to pay back any money they lend you. This means you will need to show them:
- A solid credit record
- A reasonable deposit
- An income
- A viable business plan
A solid credit record
Since the earliest age at which you can be given credit is 18, this is the point from which you can start building up your credit history.
First of all, register to vote! Even if you think “all politicians are the same” and that your vote doesn’t matter, being registered to vote does matter to your credit rating.
Then get a credit card, either from your regular bank (which knows you) or from a credit card provider which specializes in people with no/bad credit and use it responsibly.
Ideally pay it off in full each month, at the very least make sure you make the minimum payments. This is how you start building up a credit history.
A reasonable deposit and an income
Unless you are lucky enough to get extensive credit from the bank of mum and dad, then this is going to mean getting a job, living on less than you earn and using the difference to build up a deposit (after you’ve built up a cash cushion for your own emergencies).
Lifetime ISAs can only be used to buy residential property (or for your retirement), but regular ISAs can be used for whatever you like. They can also be used to hold both cash and investments. Cash is safer but grows more slowly (especially in the current environment) and investments are the opposite.
A viable business plan
While budding property entrepreneurs may be frustrated that it can take so long for them to get on the buy-to-let property investment ladder, you can put this delay to good use by learning everything you can about the property market in general and your area of interest in particular.
Remember, in the beginning, you need to niche down to grow up. In other words, it’s best to pick a specific market and target it very specifically and then you can broaden your horizons as you grow if you wish to do so.
You could choose your market based on demographics (e.g. students, young professionals, families) and then look for a suitable location in which to buy, or take the opposite approach and pick an area, look for property at the right price and then think about the potential market.
Either approach is valid, but whichever one you use, you probably want to stick to relatively simple areas such as residential lettings to groups of sharers/family units, rather than more complex ones such as HMOs.