The buy-to-let market should be going through something of a boom. With first time buyers still finding it hard to raise the required mortgage deposit, often 25%, the housing rental sector continues to increase with almost 3.5 million people today living in private rented accommodation in the UK. But is owning a rental property worth it?
On the face of it, buying a property to let appears to be a good investment and with home ownership at a 25 year low, there are greater numbers of people seeking rental accommodation today than ever before. There is, however, a shortage in the housing market for rental properties. To discover the reasons for this, we must first look at the recent economic history of the UK;
The crash of seven years ago saw many of the big property renters off-loading their property portfolios, and the recent new tax laws, due to come into force in 2017, have also proved off-putting for many considering a buy to let mortgage. With many landlords already finding margins wafer thin, the new legislation restricting what can be claimed against tax is enough for some to make property renting an unviable proposition.
The National Landlords Association claims 31% of private landlords owning one property, and 17% those who own two to four, either just broke even or lost money between April and June of 2015.
As a property landlord you have a duty of care to your tenants with annual gas and electrical safety checks having to be carried out. Furniture has to be fire resistant and the place fit for purpose. These regulations are being tightened up and wear and tear legislation is changing. From 2016 out goes the annual allowance and in comes tax relief on replaced furniture only. All these moves have been designed by the government to specifically reduce buy to let mortgages. So is the whole thing worth it?
Providing you realize the pitfalls, and take the time to research the area of your proposed purchase, buying-to-let can still be an excellent investment in the long term. The usual buy-to-let property hotspots continue to apply; London, Bristol and Birmingham lead the pack, with Slough, Reading, and Southampton seeing the biggest monthly rental yields outside of Greater London. Cities with high student populations also do well, with the vast majority of those students living in rented accommodation.
As with any business, minimizing overheads is the prime concern. There are a plethora of financial institutions offering financial incentives for those enquiring about buy to let mortgages, so always make sure to do a little research on the different mortgage providers. That said, all will probably require you to be an existing customer with a high credit rating, or at least have a good level of property collateral or liquidity.
If you already have a private mortgage, have never missed a payment, and have accrued a level of collateral on the property, approaching your current mortgage provider is always a good starting point and cuts out any middlemen. Failing that, find an unbiased Mortgage Broker to talk to, or a fully regulated Independent Financial Adviser.
Comparison websites can provide an idea of what’s on offer but beware, seeking good advice is paramount. Buy-to-let mortgage providers do not have to be regulated by the Financial Conduct Authority (FCA) and as such you could be open to what might be termed unusual practices.
Finally, even with all the doom and gloom, in a recent survey of buy-to-let landlords, only 10% said they were considering selling their property.