Buy-to-Let: The Beginner’s Guide
A recent UK study revealed some fairly shocking statistics about just how little buy-to-let investors know about their trade before diving head-first into the market.
According to Platinum Property Partnerships, a meagre 18 per cent claimed to have done “a lot” of research before purchasing a buy-to-let mortgage, with only 7 per cent actually seeking advice on their investment beforehand, either from an experienced investor, accountant or even a self-help book.
With such a blasé approach to property investment across the board, one could be forgiven for thinking that there’s little at stake. On the contrary, buying-to-let – although sometimes lucrative – is a big decision for people to make. Check out our beginner’s guide to ensure you’re not out of the loop if you ever consider investing in the property market.
What is “Buy-to-Let”?
A buy-to-let mortgage is fairly self-explanatory on the surface. Basically, the mortgage allows you to rent out the property to tenants, unlike a standard residential mortgage. Anyone renting out a property on a standard mortgage is liable for fraud.
So what’s different? Buy-to-let mortgages are charged at a higher interest rate, since there is a greater risk to the lender due to potential void periods, intervals of time when a property isn’t occupied by a tenant. Potential landlords should put away extra savings in preparation for void periods to keep on top of mortgage payments.
Additionally, candidates applying for a buy-to-let mortgage will be expected to put down a larger deposit, typically of around 25 per cent of the property price. Some lenders will also have a minimum salary requirement of £25,000, but this varies.
How Can I Profit?
The property market is notoriously tempestuous in the UK, so ensuring that you get a decent ROI is difficult. The main issue is that house values can fluctuate so much it can actually put you at a loss. For example, between 2007 and 2009, average house prices in Britain dropped a staggering 18 per cent. While it was fantastic news for first-time buyers, it spelled disaster for landlords looking to sell their property for profit.
Talk to experienced investors. When it comes to your local area, you can do no better than to talk with someone who has been there and got the T-shirt. You should particularly ask about how the property market shifted during their investment years, and whether there were any “warning signs”. It’ll save your skin in the long run.
There are other questions you need to ask yourself before you purchase a buy-to-let mortgage. Do you want to be a hands-on landlord, or would you rather leave that to a letting agency? Do you want to invest in a local area that you know well, or one further out that has more potential?
And the most important question: have I got the best deal? Don’t be afraid to shop around for the best buy-to-let mortgage – and when you find it, haggle. You’ll be in the same position as a first-time buyer; since you’re not tied in to a property chain, you’ll have more leverage to get a better deal.