Should You Buy an Investment Property Before Buying Your Own Home?
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As of 2024, the average age of your typical first-time home buyer was 33 years and 8 months in the UK overall. This not only shows the increasing prices of housing but also how difficult it is for first-time home buyers to actually get on the property ladder.
That’s why one of the most common questions we get is “Should my first property be an investment?” rather than it simply being somewhere for them to live.
That’s why, in this blog, we’re going to look closer into whether or not you should buy an investment property before buying your own home. If you’re in this spot right now, then it may be worth carrying on reading!
Buy to Let vs Residential Mortgage
In the traditional sense, buy-to-let mortgages compared to residential mortgages have many similarities, but there are a few differences that you need to consider before looking at either:
1) The Main Difference
When you take a mortgage out for a home you’re buying, you’re going to be getting a loan from a mortgage lender so you can live in the home. However, for buy-to-let mortgages, you get a loan from a mortgage lender so you can purchase a home in which you’re going to let (rental property) so that other people can live there.
2) Buy to Let Mortgages Will Almost Always be Interest-Only
Most, but not all, buy-to-let mortgages will be purchased on interest-only mortgages, meaning that you only pay the interest owed on the property you buy. However, there is a caveat: you’ll have to pay the remaining balance as a lump sum at the end of the mortgage term.
With normal residential mortgages, you’ll have so many different options, from fixed-term and tracker mortgages to variable-rate and interest-only mortgages.
3) The Size of the Deposit You Put Down
In nice and simple terms, buy-to-let mortgages are seen as more risky, meaning you’ll need a bigger deposit to put down on the overall house price. Whereas, with a residential mortgage, you can typically put a lower deposit down to get on the property ladder (although this may be more expensive over time).
Depending on the area you live in, however, a deposit for a normal home may seem similar to a deposit on an investment property elsewhere, so there are a lot of factors to consider.
4) What You Can Borrow
For residential mortgages (i.e., buying a home to live in), what you will repay every month is calculated on what you can afford to pay by looking at your income and expenditure each month. Whereas, with a buy-to-let mortgage, what you can borrow is more based on what you’re going to be charging your tenants for rent.
What About For First-Time Home Buyers?
For first-time home buyers, when looking at buy-to-let vs a residential mortgage, there are a few main points to know that may impact your view:
- You have more options when sourcing products if you own a home already
- When you have your own home, the entire market becomes open to you
- If you can’t afford a home in your area, then buy to let mortgages become more appealing
- Getting a buy-to-let mortgage for a first-time buyer is more difficult
- You will most likely (subject to affordability) get better rates (smaller deposit and a better interest rate) on a home to live in
Should Your First Property Be an Investment?
Whether your first property should be an investment depends on so many different factors, but in the generalised sense, you should make sure you’re own needs are taken care of before thinking about investment property. Of course, in some cases, it can be a profitable decision to invest in property, but you should always consult a professional beforehand to weigh up the pros and cons.
Pros and Cons in Owning Your Own Home
Speaking of pros and cons, let’s look at both the pros and cons of owning and investing in buy-to-let property:
| Pros of Owning | Cons of Owning |
|---|---|
| Owning offers you stability that you wouldn’t have | Comes with regular maintenance costs |
| It can be a great investment (long-term) | Can be expensive to move if you don’t like the area |
| You have tax benefits from owning a home | The legal fees, taxes, stamp duty, etc will be expensive |
| You have the freedom to do what you want to your home | The value of properties can fluctuate a lot |
Pros and Cons of Investing in a Buy-to-Let Property
| Pros of Investing in a Buy-to-Let | Cons of Investing in a Buy-to-Let |
|---|---|
| You will have regular rental income from your tenants | There will be higher mortgage costs and more taxes |
| There is a lot of demand in the rental space due to the prices of homes being so expensive | It can be very hands-on (if you do it on your own) |
| You have a chance to make a profit and boost your capital | The economy will always have downturn risks |
| You will have tax benefits | There will be a lot of interest rate changes |
Speak to Experts at Peninsular Property to Make the Best Decision For You
With both owning a home and buying a let property to rent out, there are always going to be pros and cons of both. Generally, it’s probably safer to buy your own home first before investing in property, but not knowing your personal situation can change this immediately.
That’s why, here at Peninsular Property, we hold over three decades of experience in this space and would be more than happy to help you make the right decision at such a massive point in your life.
Investments come with a risk, and that’s why we make sure we put you first before jumping to conclusions that one is better than the other. Therefore, if you want to make the right decision today and speak openly to a team of passionate property professionals, contact our team by calling 0151 378 1074 or emailing us at info@peninsularproperty.net.
