This is Money: Tops tips for buy to let landlords
Poor old buy-to-let. Once upon a time it was David Beckham, Wayne Rooney and Kate Moss all rolled into one – making headlines on a daily basis with every move endlessly analysed.
Buy-to-let is no longer the hot property it once was, and many investors who bought in recent years struggled as mortgage rates rose.
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 mortgage deals remain expensive and industry experts acknowledge that now is a tough time for buy-to-let.
If investors are willing to accept that the value of their property may slide in the short term, and 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 continue to be a good long-term investment.
Like any investment, buy-to-let comes with no guarantees, but for those who have more faith in bricks and mortar than stocks and shares here are This is Money's top ten tips:
1. 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. Read This is Money's buy-to-let guides which give a comprehensive run down on the subject and 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 on a fixed rate savings account.
If you know someone who has entered the buy-to-let market, ask them about their experiences.
2. 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?
3. Do the maths
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. Traditionally buy-to-let lenders want rent to cover 125% of the mortgage repayments, although many had relaxed this in recent years. Most also looked for a 15% deposit, which protects against falling prices. But in the wake of the problems in the mortgage market many are now demanding 25% deposits, or even larger, for rates considerably above residential mortgage deals. The best rate buy-to-let mortgages also come with large arrangement fees.
Will your investment work out? What will happen if the property sits empty for a month or two? Make sure you know how much the mortgage repayments will be.