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Buy To Let and investment
landlords
Buy-to-let investments have become increasingly popular in recent
years but observers warn that care is needed in the present state of
the property market.
The past few years have been a golden time for buy-to-let property
investors. It seemed as if no one could lose as the UK house price
boom gathered pace. This was no surprise when you consider the
woeful performance of the stock market and the crisis gripping UK
pensions. Money has to go somewhere, why not bricks and mortar
offering a potentially sound combination of capital growth and
investment return?
However, several interest rate increases since late 2004 mean that
the days when you could buy almost any property and turn a profit
may be over. In short, it is now essential for investors to carry
out careful research and only use experienced professional letting
agents who are not estate agents and can take an unbiased view on
the suitability of various properties.
New build developments can be flooded with buy-to-let investors and
when a number of these properties come into the letting market at
the same time they can drive down rental yields. Investors looking
to make a success of buy-to-let must take a medium to long term view
with the bottom line being to minimise void periods and maximise
rental yield… strangely enough, this can sometimes be achieved by
trimming a rent downwards as well as by easing it upwards,
occupation is the key! Any capital appreciation should be viewed as
a possible bonus.
Mortgage hoops
Popular perception is that buy-to-let mortgages are difficult to
obtain, can be expensive and are very restrictive. Some years ago
this may have been the case but the buy-to let mortgage market is
now very sophisticated and there are a large number of providers
with a wide range of products. The interest rate available on a
buy-to-let mortgage is generally not significantly higher than that
on a standard mortgage. For example, if a landlord chooses a
variable rate mortgage they can expect to be quoted in a range from
0.64% to 1.25% above Bank of England base rate, depending on the
size of their deposit. Landlords also have a choice between interest
only, repayment, low start or capped mortgages with many other
possibilities easily available.
However, buy-to-let borrowers do have to jump through some extra
hoops to satisfy mortgage lenders. These lenders often base their
loan approval decisions on the likely rental income from the
property and not on the applicant’s income.
In order to secure finance, rental income often needs to be at least
130% of the mortgage repayment and provide an annual yield of more
than 8% of the loan amount; the applicant should also have a minimum
15% deposit (sometimes 20% is needed) and all lenders have other
specific requirements.
Certain sorts of property will only be financed by a small number of
specialist lenders; these properties may be ex local authority
housing, a flat above a shop or in a high-rise block or a house in
multiple occupation (HMO).
Make sure you have a suitable property
Although we cannot give financial advice, Allan & Bath does have a
wealth of experience in the selection of property suitable for
letting and landlords are invited to contact us for an initial
chat…it could save you making an expensive mistake!
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