Buy 2 Let
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'Help to Buy' BTL?
There still seems to be a little head scratching as to what the Help to Buy scheme will do.
The chances that dastardly landlords might opportune from the scheme was thrown around on its initial announcement, but unsurprisingly that seemed a bit of Labour scaremongering.
BTL is not covered by the scheme.
There has been talk of using the scheme to invest in holiday homes -
Arnaud Bertrand, of HouseTrip, said: “Investors may want to examine the Help to Buy scheme as an option if they are looking to purchase a holiday home and secure a good return on investment. Short-term letting secures more income for a property owner than renting out long term, so the fact that a buy-to-let option is not permissible should not prevent anyone from considering this opportunity.”
But whether this is an opportunity, I'm not sure
Thinking of buying a property to let, here is some information for you to consider:
The first thing to bear in mind is that lenders perceive a buy to let mortgage as self funding commercial business proposition with the rental income covering the loan repayments. Buy to lets are an “off the shelf product” very similar to residential mortgages, but are not regulated under the FSA in the same way and do not normally require your personal income to cover the loan repayments.
Firstly to give a level playing field you need to make two assumptions:
- You have decided on the type of rate Fixed or Variable e.g. both products will be the same (see previous article) To fix or not to fix.
- You would like an interest only mortgage
Next you need to decide over what period of time you would like to compare the cost of the products. You need to consider longer term strategy that will affect your mortgage decisions such as plans to raise capital, pay lump sums off, sell, remortgage etc.
There are 3 questions I think you should be honest with yourself when asking:
Can I afford to pay that amount?
Am I happy to pay that amount?
Can I ignore what is happening to interest rates around me?
It is technically possible to purchase auction property with a buy to let mortgage, but the costs and risks are too high for anything other than a minute percentage to actually complete.
A buy to let mortgage in lending terms is very similar to a residential mortgage regulated by FSA rules, but just because something looks like a duck and sounds like a duck doesn’t always mean it is a duck. Buy to Let is still in most circumstances considered to be a commercial loan, and borrowers are deemed to have a greater knowledge of the implications of their actions than someone looking to purchase their own main residence. There are however, two common exceptions
Banks often have a surprisingly vast array of criteria that needs to be considered when lending. I have compiled a list of questions a lender will ask and factors to consider when purchasing a flat. Although fairly in depth, I would not consider this exhaustive as after 15 years I know it is still possible to run across circumstances not seen before.
Useful Information When Considering Buying a Property to let:
Research the market
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. Catch up with the latest news in our buy-to-let channel.
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.
This compares to the possibility of a 5% annual return from an income-based investment fund or 3 per cent on a fixed rate savings account.
Remember that the return from an investment in funds, shares or an investment trust through an Isa will see you paying just 10 per cent tax on income and getting capital growth tax free. You will also have the ability to sell up quickly if you want.
If you know someone who has entered the buy-to-let market, ask them about their experiences.
Choose a promising area
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? Asking yourself these questions might sound over simplistic, but they are probably the most important aspect of a successful buy-to-let investment ·
Can you still get into buy-to-let?
Many long-term existing buy-to-let investors are sitting comfortably on low mortgage rates, having seen standard variable rates fall as base rate was slashed down to 0.5%.
This is especially true for many as a lot of buy-to-let deals do not have typical SVRs but a revert rate that tracks the bank rate.
However, new buy-to-let mortgage deals remain more expensive than residential deals and require a big deposit. Despite a recent surge in demand, many industry experts acknowledge that now is a tough time to get into buy-to-let.
But with property prices having fallen to more affordable levels, those who stick to the tried and tested method of investing for rental returns rather than capital growth are tempted. You will need a big deposit though and should not expect instant riches.
If investors are willing to accept that the value of their property may slide in the short term, and can ensure their property meets the criteria of at least 75% to 85% loan-to-value and returning 125% of monthly mortgage payments then it can be a good long-term investment.
Shop around and get the best mortgage
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.
Read This is Money's buy-to-let section for details of latest buy-to-let mortgage deals highlighted and check lenders' websites, Skipton BS, BM Solutions, NatWest, Woolwich, Coventry BS, Platform (part of Co-op Bank) and Accord (part of Yorkshire BS) have been consistent in recent years.
Check some of the latest buy-to-let mortgage best buys in our tables.
If you are looking for advice consider using a specialist buy-to-let mortgage broker. Remember asking them for information means you are under no obligation to use them.
Choosing a letting agent
- You should never underestimate the work involved in the successful letting of your property.
The vast majority of landlords prefer to hand over the responsibility for finding a tenant to a dedicated and qualified letting or estate agent. This cuts out all of the necessary awkwardness of having to deal directly with viewings and negotiating with potential tenants. There are considerable advantages in using a letting agent, who will:
- Advertise your property efficiently to thousands of potential tenants looking for property to rent in the area (make sure you choose an agent that lists its properties on a major portal, like Primelocation.com)
- Have knowledge of the local market, including the type of properties to rent in the area, the potential demand for them, the rental prices being achieved and the kind of tenants who might be interested in your property.
- Manage and conduct viewings, giving them the opportunity to try and secure tenants for your property and providing you with valuable feedback along the way
- Negotiate with tenants on your behalf when discussing the rental price of the property Provide you with advice and guidance.
- After you've found suitable tenants for your property, you have the option of either managing the let yourself, or hiring the services of a managing agent to work on your behalf. Much will depend on your circumstances. If you are living abroad, for example, you may want to employ a managing agent to make sure your tenants and the property are sufficiently looked after while you're away.
The majority of letting agents also offer property management services. If this is an option you're interested in, consult the letting agent first to make sure they can offer this service. A managing agent will:
- Vet potential tenants by sourcing references from previous landlords, conducting credit checks and obtaining bank details
- Organise tenancy agreements and inventories
- Manage the start and end to the tenancy based on your instructions
- Organise the collection of rent from the tenants and arrange for repairs during the tenancy
- Inspect the property periodically on your behalf for its condition and state
- Provide professional advice and guidance throughout the duration of your relationship.