Yet despite the tax changes and potential for buy-to-let mortgage costs to rise, there are positives. Greater demand from tenants, rents that should rise with inflation and the long horizon for interest rate rises, mean many investors are still tempted by buy-to-let.
If you are planning on investing, or just want to know more, we tell you the ten essential things to consider for a successful buy-to-let investment below. My property is my pension. That was the popular saying when buy-to-let was all the rage and every other person you met fancied their chances as a minor property mogul. But life has got much tougher for landlords, with a series of tax grabs and tougher mortgage rules hitting. So does buy-to-let still stack up as a way to build your wealth?
If you are new to buy-to-let, what do you know about the market? Do you know the risks, as well as the benefits. Make sure buy-to-let is the investment you want. Your money might be able to perform better elsewhere. In recent years a high-rate savings account would beat most investments.
Now rates are lower, but investing in buy-to-let means tying up capital in a property that may fall in value. Remember that the return from an investment in funds, shares or an investment trust through an Isa will see you escape tax on income and get capital growth tax free. You will also have the ability to sell up quickly if you want.
This guide has been helping landlords make the right decision for more than a decade. It is regularly updated with new information and designed to help you assess buy-to-let properly. If you have a buy-to-let question email us at experts thisismoney. The flipside is that you cannot buy an unloved investment fund and set about renovating it and adding value yourself. Investing in buy-to-let involves committing tens of thousands of pounds to a property and typically taking out a mortgage. When house prices rise, this means it is possible to make big leveraged gains above your mortgage debt, but when they fall your deposit gets hit and the mortgage stays the same.
Property investing has paid off handsomely for many people, both in terms of income and capital gains but it is essential that you go into it with your eyes wide open, acknowledging the potential advantages and disadvantages. If you know someone who has invested in buy-to-let or let a property before, ask them about their experiences - warts and all. The more knowledge you have and the more research you do, the better the chance of your investment paying off.
Promising does not mean most expensive or cheapest. Promising means a place where people would like to live and this can be for a variety of reasons.
Where in your town has a special appeal? If you are in a commuter belt, where has good transport? Where are the good schools for young families? Where do the students want to live? You need to match the kind of property you can afford and want to buy with locations that people who would want to live in those homes would choose. These questions might sound overly simplistic, but they are probably the most important aspect of a successful buy-to-let investment.
In most cases 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 tabs on the property. Yet it is also worth bearing in mind that if you are a homeowner then you are already exposed to property where you live - and looking for a different type of home in a different area might be a good move.
Before you think about looking around properties sit down with a pen and paper and write down the cost of houses you are looking at and the rent you are likely to get. The best rate buy-to-let mortgages also come with large arrangement fees. Once you have the mortgage rate and likely rent sorted then you must be clinical in deciding whether your investment work out?
What will happen if the property sits empty for a month or two? These are all things to consider. Make sure you know how much the mortgage repayments will be and if it is a tracker allow for rates to rise. The cheapest buy-to-let mortgage rates are on two year fixes and for those with a big deposit they are as low as 1. A five-year fix may be a more sensible plan for many landlords, however, and the keenest rate here is The Mortgage Works 1.
Those are low loan-to-value mortgages, however, and if you only have 25 per cent to put down the top two-year fix is 1. When it comes to getting a buy-to-let mortgage, a good broker will be a great help and can point you towards deals you will actually secure.
Do not just walk into your bank and building society and ask for a mortgage. It sounds obvious, but people who do this when they need a financial product are one of the reasons why banks make billions in profit.
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 and whether to fix or track.
You should still do your own research though, so that you can go into the conversation armed with the knowledge of what sort of mortgages you should be offered. Instead of imagining whether you would like to live in your investment property, put yourself in the shoes of your target tenant.
Who are they and what do they want? If they are students, it needs to be easy to clean and comfortable but not luxurious. Seek specialist tax advice. How can you keep up? Keep your identity safe. To choose a good lettings agent, you need to focus on the service they deliver rather than the price they charge. Keeping your property in good condition — and a good rapport with your tenants — could mean your buy-to-let stays occupied for longer. It pays to have the appropriate insurance cover when dealing with high-earning professionals.
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Buy-to-let is a business, so be professional. There are typically two options when hiring a lettings agent: let only, and full management. The former is cheaper.
A business plan is always helpful to manage the risks and rewards of your buy to let investment. Download our business plan template for your buy to let property.
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