Back in the day
Ten years ago, nearly every TV show across a wide range of channels was property related. Not only was it cheap, easy TV to make, but the public couldn’t get enough of it.
A Place In The Sun, Property Ladder, that show with Kevin McLeod where people turn barns into mansions, the list was endless.
The vast public appetite for such programmes and for property investment in general was part of a vast bubble that, as we now know, burst in 2008.
It’s easy to be wise after the fact, and Britain’s property market, particularly the buy-to-let market has never quite been the same since.
A super cheap buy to let market between 1997 and 2008 saw large numbers of ‘get rich quick’ casual landlords buy properties in the hope that they would have to do very little in return for a continual income.
Many left the market in 2008, and a few limped on, realising that being a landlord is often quite demanding.
There is still a place for serious buy to letters out there who can work and think strategically to build up a business.
If you are thinking about it as an investment strategy for the future, this blog will give you some useful pointers.
You cannot use a conventional mortgage or insurance to buy a buy to let property and switching a regular residential home over to rental use requires a special buy to let mortgage.
Scrimp on this detail and the bank might call in its mortgage altogether.
A mortgage for a rental property will typically have a much higher interest rate than a residential mortgage.
The loan to value percentage (how much of the total value of the property you can actually borrow), is higher for a buy to let mortgage than for a residential mortgage.
This shows that banks are interested in lending to serious investors who can a higher percent of the value of a property themselves.
One aspect of the buy to let mortgage that makes life slightly easier for the purchaser is the fact that they are often interest only.
This means that each monthly repayment covers just the interest payment and not the loan ‘capital’. At the end of the agreement the capital can be repaid by selling the property and the seller can retain any profits.
This presumes, of course, that there are profits. A poor purchasing decision could leave you with negative equity, or you might find, as millions have in the last decade, that markets can slump as well as boom.
The bank sees the borrower as a business partner, one which it hopes will be fit, healthy and alive towards the end of the agreement.
The risk averse banking sector is no longer throwing money at house buyers (private or rental), and expect a buy to let landlord to take on the bulk of liability.
This means that if you are going into the letting business, you need to make sure that you have a viable business plan.
Are you targeting young professionals, students, married couples or commuters? If you don’t have a niche market in mind, you need to get one before you go any further.
This will determine where, and what you buy. There is no point buying a flat for wealthy young professionals in bedsit land, or a property aimed at families in a row of student houses.
Your Legal Responsibilities
You will also be responsible to the local authority as well as the bank; a rental property has to reach the basic levels of safety, hygiene and energy efficiency.
It might be worth consulting your council’s housing department for further advice on your legal requirements before you proceed.
Remember as well that your property will be liable for council tax payments, a cost that most landlords pass on to the tenants.
If you would like further advice on the kinds of finance available for fledgling buy to let businesses, speak to a financial adviser who deals in mortgage advice.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
MOST FORMS OF BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.