What You Need to Understand About Buy-To-Let Property
Soaring rental rates may make investing in buy-to-let property seem increasingly enticing to those with sufficient capital to put down as a deposit, but do you stand any chance of profit from a direct brick and mortar investment?
Investing in buy-to-let involves purchasing a property to let it out. Specially designed buy-to-let mortgage loans are available for this purpose. Such mortgage loans work in a similar way to other mortgage loans in that you repay the loan in monthly installments plus interest. However potential monthly rental payments on the property will usually have to equal or exceed a minimum amount, usually 125% of monthly mortgage repayments.
Buy-to-let investing has risen significantly in the last year, with the number of mortgage loans issued increasing by 17% according to the Council for Mortgage Lenders (CML), in comparison to relative stagnation across the rest of the housing market.
In July average rental prices per month in England and Wales reached a new and enticing high of £725 which would convert into an annual income of £8,700 before tax. The rise in rental rates has in turn led to an increase in average yield, which rose to 5.3% in July.
However, once costs such as insurance, voids, maintenance, agency fees and mortgage costs have been taken into account return on your capital investment- a minimum of 25% of the cost of the property- may end up significantly depleted.
There are several additional factors you may want to consider when considering investing in a buy to let property, such as whether the property you have chosen is in a desirable location, and how you would manage if the property stood empty for some time.
While lending is at a high and the potential yield is higher than that seen on many savings or investment options, repossession of Buy-to-Let properties reached an all-time peak of 0.24%.
A recent report suggests that buy-to-let property prices could grow by 2% per year (PricewaterhouseCooper) between 2012 and 2025 as demand for rental property continues to increase, investment risks remain high, particularly in an uncertain economic climate.
Just because a buy-to-let property is a physical investment, it doesn’t mean that it comes without risk. It’s important to remember that your property may be at risk if you do not keep up repayments on your mortgage.
The property market is certainly no way to make a fast buck and though reasonable returns may be seen in the long term, short term pitfalls should be considered very carefully indeed.
Buy to Let Locally for the Best Outcome
As people choose to get into the buy-to-let market so that they can maximise their income in the course of lean times, these people must understand the essentials regarding finding and purchasing the ideal accommodation.
One of the most important steps would be to look at your local area. Those who choose to live in this area will probably be looking for the same things that you buy for your own home, so you can attune your property search to those needs. Purchasing a house nearby means there is an advantage of local knowledge, and will also allow you to deal with maintenance problems quickly and easily, without having to travel too much to solve the problem.
Another thing that you ought to consider is the amount of energy you want to invest in the property. Try to find something which needs little upkeep as your first buy-to-rent, so that you need not worry about things in the property constantly going wrong. Try and steer clear of buildings with major concerns, such as subsidence or serious roofing damage, as these can be costly to repair. You should also not be swayed by large gardens, or ‘leisure’ bedrooms, as these are unlikely to influence the final rental amount.
The current housing situation signifies that there are plenty of houses available for lower than their standard worth, as well as investors can make a good purchase while still getting a bargain. The cost of houses also means that folks are not able to get cost-effective mortgages, which means that they are often priced out of the marketplace. The solution to this problem is to lease a property.
The owner of the home features a secure investment, particularly in times that do not favour a re-sale. A home is a physical asset, meaning that the actual investor can rent out or perhaps sell the property at any time they will choose. Purchasing a house having a slightly reduced price tag, as well as investing the saved cash into renovating the house can also help to improve rents. All of these elements can ensure a good come back on your income.
Do Your Evaluation
When you are evaluating for the best buy to let mortgage for UK property owners along with not so favourable credit history, you possess a constrained option. Usually, there are some loan companies exist in the buy to let mortgage market that is willing to offer mortgage for a wide variety of financial conditions. Most of the loan companies and lenders are normally having with numerous offers that allow you to choose from the one that best meets your needs. Thus, figuring out the best buy to let mortgage UK lenders deal tends to be not an easy task.
In case you are now thinking of getting a buy to let mortgage in the UK, then you need to ensure that you are aware and know well about the buy to let mortgage UK lenders who willing to make the deal. You need to know regarding the benefits and the risks you going to have.
Besides, you also need to know in which a buy to let mortgage is the right investment for you. You need to determine whether the money that you invest could make you any good profit since making your investment in a buy to let mortgage in the UK indicates that you are tying up your money in a property that is going to fluctuate for its value. You need to ensure you are getting good tenants that you will be able to receive the rent on time every month to cover the mortgage insurance as well as other maintenance costs that you need to pay.
You need to know that buy to let mortgages and remortgages are meant for properties purchased to let out. Lots of individuals including residents in the UK normally feel that property investment is a very safe investment and this been caused many UK residents are keen on buy to let investment. In the past, there were not many people are willing to buy properties due to high, unappealing interest rates that stop them from dabbling into the buy to let market. Nevertheless, within the last few years, the interest rates of buy to let mortgage has turned out to be quite attractive and many people start showing their interest to invest in properties. Nowadays, you can find a lot of different mortgage and remortgage deals from which to select. And If you type in buy to let mortgage UK to a search engine, you will expect to receive more than 100 of related results.
Lending Criteria That You Need To Meet
After all, if you are planning to get the buy to let mortgage in the UK, there are some lending criteria that you need to meet.
£25,000 / year
You need to be at least 25 years old and not more than 75 years at the end of the term of your mortgage
How much you need to deposit?
At least 25% (either property value or purchase price, whichever is lower)
You are eligible to have a maximum of 3 buy to let mortgages or you can apply for £2 million from the UK banking group.
Rental income per annum needs to be equal with at least 125% of the mortgage payments per annum (interest only) by the present initial rate for the mortgage package that you decide on.
More Convenience For Mortgages Application
As of now, you can find a lot of different buy to let mortgage deals in the UK that would rather keep to the more secure ground of ordinary mortgages for residential investment. Nevertheless, you can also find buy to let mortgage UK loan companies who are going to provide loans on property with the purpose of holiday lets or student lets and taking into consideration a lot of conditions affecting buy to let individuals.
One thing you should be aware of is that for offshore commercial, finance, buy to let mortgages and loans will not be regulated by the Financial Services Authority. The property that you own may be reclaimed should you not carry on your mortgage repayments.
The thing that may worry you is what would be your significant step for you to perform in case you do not possess an initial deposit? Well, if you will make your investment for the first time in buy to let investment property, then you may just search for several releases of equity through the residential property. You should find out the details on the idea, and the best thing for you to acquire such information would be to call up your current lender and ask him if you are eligible to start your investment property portfolio. When you are confirming that your financial situation is in good shape, then you can just make your first buy to let purchase. After all, the best buy to let mortgages in the UK is a simple financial commitment for purchasing a property and then to churn out some income from the rental of the property generated.
Insufficient Supply of Buy To Let Property
Recently, buy to let mortgage holders in the UK have acknowledged in which property rental prices remain to increase. This is due to there are insufficient rental properties in the UK but many people are wishing to get a good property. Therefore, it is just a good time for people to invest in buy to let property at the moment.
The rental prices increased were revealed by the latest Residential Lettings Survey which is conducted by the Royal Institution of Chartered Surveyors (Rics). The survey also discovered the demand for property was higher than supply as many new consumers are looking for accommodation.
It learned that many people claimed there is not enough with the supply of rental property and it is the biggest issue now in the property sector in the UK. While in last year many experts highlighted in which a deficiency of properties would have been a determining factor in the property market, and now it seems like this opinion has turned out to become fact. Besides, more and more people are having difficulty in getting mortgage credit. As a result, the entire UK is desperate to look for a good quality buy to let accommodation.
Buy To Let Mortgages in the UK for First Time Buyers
It can be considered challenges experienced by first time buyers in getting buy to let mortgages in the UK as well as meeting down payment requirements have the effect of this rise in the property market.
Limited good quality properties supply coupled with strong tenant demand is driving rental prices ever higher throughout many states in the UK. In addition to deficiencies in getting a mortgage loan, the inevitable consequence would be the fact that these rental prices will continue to rise.
Investors acquiring a buy to let mortgage tends to target the young people group who happened to be first-time buyers because they’re considered to be having difficulties to get a mortgage loan for them to buy a property. And insufficient in property supply, high housing prices and the prerequisite to come out with a substantial deposit could be some of the reasons that contribute to this difficulty.
Also, repayments for a student loan, low interest on savings, high inflation and flat wages are all other reasons that worsen the situation. As a result, the expert noticed there are limited and high price options for rent. Most of them are making a forecast that rental fees will rise by 20% in the next five years.
As of now, the average rental price for a two-bedroom flat in the UK is £677 a month. This fee can be lower compared to the monthly costs someone paid for a similar domicile if it was purchased by a first-time buyer.
Good Profit With The Right Buy To Let Property
High demand for property or home signifies the cost of rent will increase further and that means buy to let mortgage investors will make more profit from this. Therefore, if you choose the right property in your area, then you can alter and raise your rent if the country is having not enough supply of property.
As long as you are having the right property, advice, and mortgage for your disposal, there will be a very good chance for you to make a good earning by renting out a buy to let property.
Applying for Buy To Let Mortgages in the UK
In case you wish to invest in a property in the UK with the intention of rent the property out later, then it’s most likely that you’ll want to get a buy to let mortgage. However, for you to entitle to buy to let mortgage, you will need to be able to come out with a certain amount of money to pay for the down payment. And you need to know that most of the buy to let mortgage lenders will ask for at least a 15% deposit for the total cost of the property that you want to buy. As of now, you may find some mortgage lenders even asking for 25% of the deposit.
Better situations for property owners
Nowadays, situations are turning out to be less complicated for property owners. Back in the day, if someone wants to purchase a property with the purpose of rent it out at a later time, then they will need to make an application for a commercial mortgage, which happens to be more costly and also hard to arrange. And now many rules have changed for the benefits of consumers where right now buy to let mortgages can be obtained from all major mortgage lenders.
Most residents in the UK been realized that property prices have massively elevated in the last ten years. This has triggered an outburst of the buy to let mortgage market since a lot of households not able to pay for the down payment required for a home financing. As a result, this has helped to make buy to let mortgage very high demand among property investors.
However, many people not really like buy to let mortgages for the last five years. Many of them are blaming buy to let mortgage as the main reason that causes exploding property prices in the UK. London is a good example, where experts agree it is projected over 30% of the houses are purchased to rent them to tenants later.
Things for You to Take into Consideration When Applying for Buy To Let Mortgage
If you plan to apply for a buy to let mortgage, you need to bear in mind that you shouldn’t borrow an amount that you are not able to repay. If you’re applying for a mortgage as a first-time buyer, you need to give the mortgage lenders with evidence in which you could make the repayments for the mortgage. If you can give them a robust estimated income, you are going to have a very high chance of getting the approval of your mortgage loan. By applying for buy to let mortgages, the mortgage lenders may request you to make a substantial down payment, the amount can sometimes be up to 25% of the total value of the mortgage that you apply for. Besides, you will need to consider insurance to safeguard you and also the mortgage lender from income loss that is caused by disability, illness, or death.
Save Money When You Compare Buy to Let Mortgages
Over the last decade, the real estate world has changed drastically. To ensure you are getting the best deal possible, it is advisable to compare buy to let mortgages. Several banks and lending companies will match or better their competitors offer considerably.
Once you have determined your max loan to value proceed you will be able to approach the various lenders that are available. Make sure that you do some research, find out a few things such as; lender initial rate, the percentage for fixed vs variable mortgages, and whether or not there are penalties for paying off your balance early.
Save Money With Buy To Let Mortgages
To save money when you compare buy to let mortgages make sure you shortlist the potential lenders between three and five. Most lenders will look for a minimum deposit of 40% if you already are a homeowner or have a credit history that is in good standing that rate may be lower.
Once the lender has completed your credit score you will know what sort of down payment is required. Many of the high-end companies have a convenient online repayment calculator. You can figure out how much you can afford to borrow, and how long it will take to pay back the mortgage.
These calculators are a great tool as you can plug in various rates and durations to see how to best proceed. When lenders are looking at the property you are looking at they will create a portfolio for you, this will have all of your credit histories, you can ask to see this at any time and is handy to view the payable for the tracker.
This day and age investments are a tricky spot. Many stocks and bonds are in the basement and it doesn’t seem like anything is about to change anytime soon. Many investors are turning to real estate to invest their money.
Of course, the stock market always seems to rebound, but real estate is a good investment as you can let to another person or family and their rent will essentially pay for the mortgage on your property.
When you compare buy to let mortgages make sure each lender has the same offers on the table. Is the mortgage based on the lowest pay rate?
You also want to know what the annual percentage rate is, this is also known as ‘APR’ and you may receive APR 60%, APR 65%, or APR 75% depending on the mortgage that you get. This is an important factor in your decision. Get yourself a comparison max loan and match them against the shortlist of lenders you come up with.
In conclusion, when comparing buy to let mortgage rates you want to get the best mortgage deal you can find. You also want to ensure you are aware of any other additional costs that will be involved with letting the property. Some key things include home insurance, repairs, hydro and heat, and building upgrades. Some or all of these may be assumed by either the renter or the owner, ensure you have this in writing.
5 Tips for a Making a Good Buy-to-Let Purchase
Now is a truly great time for people to get involved in the buy-to-let market in the UK. Existing landlords, for example, have been some of the few to benefit from the price of property falling like drops of rain, as they have an increased demand for their properties and can charge higher rental rates because there is greater demand. They also tend to have bigger chunks of change lying around too, if they have been smart with their buying and selling in the past, so they can shrug off the intimidating large deposits and take advantage of the lower overall prices if they want to invest further.
First Time Investors
While it is indeed harder for first-time investors to get their hands on a buy-to-let property, improving mortgage deals, increased rental figures and lower overall house prices are tempting, to say the least. While they will not be in as good a position as existing landlords, they can certainly get involved as long as they are savvy and can find a property that will allow them to see at least 125% of their mortgage payment returned each month though rental income.
About the Savvy: Here are 5 tips that should inject some savvy into a first time buy-to-let investment project:
Location is important, but when it comes to a buy-to-let property it is important to stay focused on why you are buying this house. Remember it’s not for you and try to think about it as finding a nice property in a location that will appeal to people willing to pay high rents. This might be a spectacular location, somewhere with great transport links, a house in the catchment area for a popular school or a flat in a popular student area.
2. Tenant Mindset
Similarly, you must get into the mind of your target tenants. Try to think about what they will look for in a property and try to match everything about your property to this model.
3. Look Nationwide
If you don’t intend on being a hands-on landlord, you need not stick to your local area. You can buy property anywhere and have it managed by a local agency. Remember it’s an investment and that the best deal maybe 100 miles away.
If you do want to be hands-on, then you do need to make sure you are prepared for what this involves: contracts, contractors, dealing with leaks and locked out tenants, etc. This may have a bearing on the type and location of the property you look for and on the type of tenants you want to deal with.
5. Get a Great Deal
At the end of the day, no matter what property you go for, a first-time investor is in a strong position as they are not part of a chain. Never forget this fact when haggling over price as this is a strong card that you should play to demand a reduced price.
Happy house hunting!
Read also: Obtaining The Best Mortgage Deals in UK