Feature - Buy to Let update

Feature - Buy to Let Update

In the current financial climate, purchasing, renovating and selling a property is no longer viewed as an easy way to get maximum profit. For the first time in years, the property market has stagnated in some areas, and even gone down in others, causing homeowners and property investors to re-think their game plan.

Buying a property with the long-term view to let it out has now become one of the most solid ways to make a significant profit.

According to Paragon Mortgages, buy-to-let mortgage specialists, the buy-to-let market is still going strong as April’s figures revealed that the average rental charge is now £11,886 – up £250 on the previous month. Many investors are capitalising on what is currently a cautious property market by snapping up repossessed or dilapidated homes and refurbishing them in a matter of weeks – ready to be rented out. However buying a property with the intention of letting it out is not as simple as purchasing your own home and there are a lot of things to take into consideration.

Here are five top tips to getting a secure foot on the buy-to-let ladder:

1) What’s happening in today’s market?
In 2006, around 330,000 buy-to-let mortgages – worth £38.4 billion – were taken out, according to the Council of Mortgage Lenders, more than eleven times higher than the late nineties. And today the market continues to boom into the billions.

Despite the recent slow down in the property market in the wake of the credit crunch, the majority of buy-to-let landlords are optimistic about their prospects in 2008, according to a recent report by Alliance and Leicester. The report found that 77 per cent of landlords claim to be making a significant profit from their investments in the buy-to-let market and that there is a particular air of ‘positivity’ in central London, where landlords expect rental yields to be up to four times higher than that of buy-to-let properties in the rest of the South East.

The Association of Residential Lettings Agents (ARLA) claims that around 46 per cent of buy-to-let investors plan to add to their portfolio of properties during 2008. And buy-to-let doesn’t just have to be a word associated with investors, it can be an excellent pension opportunity for anyone looking towards the future.

2) Research, research and … research!
If you’re thinking about purchasing a second or third house as an investment, don’t base all your buy-to-let opinions on what the national press has to say – every town and city is different. A good tactic to get the ‘low-down’ on the buy-to-let market in your area is to approach agents as a potential tenant – this may produce a less biased view of local market conditions plus you’ll get an idea of rental income, how long certain homes have been on the market and which are the most desirable parts of town.

Keep an eye on the local media – property hot-spots can change as the area evolves. For example, finding that there has been a spate of burglaries or that there are plans to build a new bypass through the nearby woodland can have a huge impact on property value. On the other hand, plans for a new school or potential employment opportunities can the boost the appeal of a place to the potential home-seeker.

Don’t forget that the buy-to-let market does not simply revolve around London and the most expensive doesn’t mean the best. Plenty of towns outside the ‘Home Counties’ offer reliable rental returns. Birmingham for example holds only 11 per cent of rental accommodation, yet with 23 per cent of the workforce aged between 18 and 30, it is a clear rental hotspot.

In short, what you're looking for are places with a large, young, working population and a shortage of rental accommodation. However it is a fact that buy-to-let investors who purchase property within a few miles of their local area tend to prosper – if not from an increased income then from reduced traveling and eased stress levels!

3) What do I need to do to get on the ladder?
Before you start looking at properties you need to decide how much you’re willing to spend, taking into consideration your new rental knowledge for each area. Traditionally buy-to-let lenders want rent to cover 125 per cent of the mortgage repayments whilst many also require a 15 per cent deposit in order for a mortgage to be agreed. If you’re looking for advice rather than simply signing up to a mortgage deal there-and-then, consider speaking to a specialist broker in the buy-to-let field. Asking someone for information doesn’t mean you have to use them and they may even stop you from making a costly mistake.

Another important decision to make before you start is whether you intend to manage the property and tenants on your own or whether you’ll employ a letting agency to do the leg work for you. If it’s just the one property that you’ll be looking after then it may well be manageable after work and at the weekends – but make sure you’ll still be willing to give up your spare time at the drop of a hat.

4) Occupied and unoccupied running costs
One of the main financial issues to factor into any budget is the damage caused by tenants, which incurs an average cost of £1,360 a year. Tenants don’t even have to be destructive to cause this damage as most properties will require redecorating or refurbishing at the end of tenancy periods especially as, according to Themoneycentre.com, 24 per cent of tenants stay in the same property for more than two years. All it would take is for the boiler to break down and you’re looking at maintenance costs which could run into thousands, so make sure you’re financially prepared.

When a property is unoccupied it’s not just the mortgage repayments that you’ll have to cover out of your own money. Other costs will include council tax, tenant advertising and TV licensing – all of these costs bundled together can add up if the unoccupied period runs into several months.

5) Important things to watch out for
If you’re a fair and responsible landlord – or landlady – then you’ll be providing the best possible chance of keeping your tenants happy, which reduces the likelihood of an unoccupied house for long periods of time.

There are a number of health and safety standards – for gas and furniture for example – which, if followed correctly, should protect you legally against residing tenants.
Regulations regarding fire-resistant furniture are strict in rental accommodation and all items in the house must meet the guidelines set under the Furniture and Furnishings (Fire) (Safety) Amendment Regulations 1993.

Any items that contain upholstery, and could be used inside the property, should be checked, including beds, headboards, mattresses, sofa beds, cushions, pillows, etc. Items that are exempt from this legislation include sleeping bags, duvets, pillow cases and blankets, carpets, curtains and all furniture made before 1950.

Like any investment, buy-to-let comes with no guarantees, but if you do your homework on the area and its typical rental incomes, and make sure you’re a reliable landlord, then there are no obvious reasons why you shouldn’t benefit from many years of steady income. And, just think, a few years down the line you’ll then be the owner of an extra property which will finance a very comfortable – or exciting – retirement!.

*Taken from our last monthly newsletter to over 230,000 home owners. To receive our free newsletter, click here. You can unsubscribe at any time.