Buy To Let Guide
Our previous Chancellor has left us a legacy which can create obstacles in this investment strategy. For example; you now will have to pay an extra 3% Stamp Duty to purchase buy to let property, changes into effect from April 2017 will reduce mortgage interest tax relief and eventually will be replace with a 20% tax credit. Despite the tax changes and potential for mortgage costs to rise, greater demand from tenants means that rents should rise and the long horizon for interest rate rises means buy-to-let investment is still the most profitable today.
A buy to let property can be a great investment, but you shouldn’t underestimate the amount of work involved in becoming a landlord, even if you plan to use a letting agent to manage your property.
1. What do you know about the market?
2. Are you aware of the risks?
3. Do you know the benefits?
Research the market
Property investing has paid off handsomely for many people, both in terms of income and capital gains but it is essential that you fully aware of the potential advantages and risks. It involves committing tens of thousands of pounds of your money to a property and typically borrowing more (taking out a mortgage). House prices rise, this means it is possible to make big gains above your mortgage debt, but when they fall your deposit gets hit and the mortgage stays the same.Talk to someone who has invested in buy-to-let property and to get to know their experiences. There are several areas of research which you must address before considering purchasing a property.
Choose a suitable area and tenant
Suitable does not mean most expensive or cheapest area. Suitable means a place where you would like to either live or work and this will be your decision for a variety of personal reasons – you need to match the kind of property you can afford and want to buy with locations that will suit you and the tenants you want to work with:
1. Students – Near colleges and universities
2. Commuters – city suburbs,
3. Young families – near good schools (plenty of belongings)
4. Town centres – young professionals (modern and stylish)
Traditionally, people tend to invest in property close to where they live. On the plus side, they are likely to know this market better than anywhere else and can spot the kind of property and location that will do well. They also have a much better chance of keeping an eye on the property.
Cast your net wider and look at towns with good commuting links that are popular with families or have a sizeable university. It is also worth looking at properties that need improvement as a way of boosting the value of your investment. Tired properties or those in need of renovation can be negotiated hard on to get at a better price and then spruced up to add value.
Shop around and get the best mortgage
Do not just walk into your bank and building society and ask for a mortgage. It pays to speak to a good independent broker when looking for a buy-to-let mortgage. They can not only talk you through what deals are available but they can also help you weigh up which one is right for you.
Buy-to-let lenders typically want rent to cover 125% of the mortgage repayments (this now been increased to 145% by some lenders) and a 25% deposit, or even larger in some cases, for rates considerably above residential mortgage deals. The best rate buy-to-let mortgages also come with large arrangement fees.
Do the sums
Before you think about looking around for properties sit down with a pen and paper and write down he cost of houses you are looking at: