Go Direct News Buy to let can still prove successful with the right approach

27 Dec 2024

Best Mortgage Deal

Specialist UK Mortgages...

Buy to let can still prove successful with the right approach

Lee Tillcock, Editor Business Moneyfacts comments:

“The recent base rate rises have seen concerns raised over the continuing sustainability and profitability of the buy-to-let (BTL) sector. It is worth remembering that rates are still close to historic lows and that the buy-to-let market still offers a sound long term investment.

“The key to profitable participancy in the buy-to-let sector is keeping properties rented. ARLA (Association of Residential Letting Agents) has found that buy-to-let tenants are staying for longer than ever. Regardless of the initial term of the tenancy – often six months – tenants are staying for an average of over 17 months.

“The long term outlook for demand is also positive. According to the housing supply review, there is a deficit of 450,000 houses in the UK which is growing by 120,000 per annum. The Town and Country Planning Association has stated that 3.5 million new households are needed by 2021. Recent research has reported that the number of one person households or ‘living loners’ will increase by 53 per cent to 9.9 million by 2026: the resulting increase in the number of flats and converted houses in the future as a result of this will only drive the rental market further.

“Whilst house prices may not continue to offer double-digit growth, the suggestion that prices will fall markedly does not fit the supply and demand model. A section of the UK population continues either to struggle to afford to purchase their own property or simply prefer the flexible lifestyle of renting, as a result of which landlords and their properties will remain increasingly sought after.

“But before jumping with both feet into the BTL market, make sure you do your homework. 2006 saw a raft of legislation introduced and this is set to continue for the foreseeable future. While the return on BTL property may look very appealing when comparing mortgage costs to your potential rent, you also need to factor in the cost and time involved in complying with new the new legislation, the upkeep of the property, management costs, tax liabilities and any periods of unoccupancy. And remember property investment should be a long term commitment, especially as the housing market reaches a peak and short term gains start to diminish.

“So once you have found your perfect investment property, make sure you also find the most suitable finance option. With over 2,000 buy to let mortgages available from almost 100 lenders it can be a potential minefield to find the best deal. Not only are there variations in rates, terms, fees and incentives as per the residential market, there are also variations in lenders’ criteria, both in terms of portfolio sizes and also the affordability calculation, whereby lenders use different rental calculations, underlying rates or even take into account your own income.

“Figures released today from the Council of Mortgage Lenders showed that 330,000 BTL mortgages were taken out over 2006, a 48% growth in volume over 2005. So while BTL is certainly still in vogue, don’t assume it’s a easy, sure fire way to make vast sums of money. It takes experience, investment, research and time to build a successful BTL portfolio.”

Buy-to-let – Moneyfacts top tips

Local knowledge – location, location, location!

Speak to at least three property managers in your area. They will advise on demand, property types, likely returns on your investment and so on.

Ask what properties are in demand and why.

Ask whether the demand is for furnished or unfurnished properties.

Join your local Landlords Association – to help to keep you up to date with legislation, share knowledge with other landlords, etc.

Document the state of the property at the start of the tenancy – and get your tenant to agree to it. That way you can prove responsibility if the tenant vacates and the property has become damaged.

Upkeep/maintenance of the property – schedule regular visits.

Can you afford the costs of servicing/maintaining a second property?

Redecoration is down to you and makes your property more attractive to future tenants.

Insurance – specialist insurance is available that may include unoccupancy cover, accidental damage and malicious damage by tenants.

Safety – comply with regulations for electrical/gas appliances, furnishings, etc. A raft of legislation has impacted upon the market over the last year, developed to provide a higher standard of accommodation for tenants.

Get references and ALWAYS get at least one month’s rent in advance – protection if the tenant ups and leaves.

Keep in touch with your tenant - a two-way relationship can really help, as your tenant needs you as much as you need him.

NOTES TO EDITORS:

Moneyfacts Group
Moneyfacts is the UK’s leading independent provider of personal financial information and our data is used and trusted throughout the financial industry.

Regular Charts
We can supply you with regular weekly or one-off selection charts on many financial products including savings, mortgages, credit cards and personal loans. Our charts are independent, impartial, totally accurate and up to date.
Please call Andrew Hagger on 0870 2250 512 for further information

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Think carefully before securing other debts against your home, your home may be repossessed if you do not keep up repayments on your mortgage.

Go Direct.co.uk is a trading style for website purposes of Go Direct UK Ltd.

Go Financial Services is a trading style of Go Direct UK Ltd which is an appointed representative of Personal Touch Financial Services Ltd which is authorised and regulated by the Financial Conduct Authority. Registered in England & Wales Company 5703224. FCA Number 456600

We normally do not charge a fee for mortgage advice, however this is dependent on your circumstances. Our typical fee would be £349