UK’s buy-to-let market has been growing steadily in recent years, accounting for 14.4% of overall mortgage lending as of Q3 2014, continuously attracting more and more investors. With low rates and instability of stock market, buy-to-let scheme invites buyers with enough capital to bump the value of deposit, creating a good head-start towards the journey of income investment.
House prices bouncing back encouraged many investors to pull the trigger on buying to let properties in the hope that value will eventually go up. Risky, some would say, but the outcome can be quite significant, placing future landlords in a rather comfortable financial position. Not only low house prices but also record low mortgage rates are enabling investors seal the deals quickly.
So why not give it a crack and see if buy-to-let (BTL) might be a good decision to make. In this article you’ll learn more about it and see how easy it can be to get a return on investment from your property.
Put it simply, BTL means you purchase a property with a goal in mind to let it out. This type of venture is not a new phenomenon. During the First World War mortgage arrangements were significantly more difficult, making the purchase of a property a great challenge. Not long after the War, the period between 1915 and 1991, saw housing stock accounted by private rented properties fall by 83%.
Only with the introduction of assured shorthold tenancies, as part of the Housing Act 1988, rent controls were lifted off, providing less secure tenure than older tenancy types. Nevertheless, such change brought along increased willingness by mortgage lenders to provide funding to buyers.
There are many benefits of BTL investment but also quite a few pitfalls. Property rental provides a landlord or a property developer with substantial income as well as accumulation of wealth when a property value goes up over time. The risks are, however, when a landlord takes a mortgage to purchase a property with a goal to sell this property at a higher price or expects a rental income to meet or exceed a loan value. Like with all investments, the objective of property development is to make money. If, however, a landlord will fall short of his mortgage repayments and start losing money. When this instance happens, a lender will arrange to take possession of the property to regain the loaned funds.
Such situation can be a real game-changer and every property developer should re-think before investing in any property. Despite popular areas where a property was purchased there may be periods of it being empty, thus it’s recommended to have some contingency planning implemented.
BTL funding has been available in the UK since 1996. The aim of this type of mortgage is to help buyers get into the private rented market and enable them to monetize on it. The amount loaned by banks is calculated based on the amount of expected monthly rental receipts to determine how much maximum they are able to lend. BTL mortgage interest rates and fees tend to be slightly higher than those for owner-occupied mortgage. This is simply because BTL mortgages bring a bigger risk than the other ones.
One more thing to remember is that BTL mortgages can only be offered to potential buyers if they already own another property either outright or with a mortgage. Finally, if your gross annual income is minimum £25,000 then you’re all set to invest.
Even though BTL mortgages are more expensive than the other mortgages, they still enable you to become a property investor and help you generate more income.