Mon 08 Jan 2018
BUY-TO-LET TIPS FOR INVESTORS
Daniel Owen-Parr, Commercial Sales Director at specialist finance provider Together, says property is still a great opportunity and agents can help landlords to get it right.
Whether you are advising a client on a buy-to-let purchase, or interested in taking the plunge yourself, for those entering the market it can be a minefield.
Changing regulation, particularly around taxation, means that those who are interested in the property industry need to stay up-to-date with the ever-changing buy-to-let landscape.
Residential property remains a popular investment choice and the rental market continues to grow, so new investors are still coming into the market, despite the ongoing changes to the sector.
There are still a great number of opportunities, whether you are looking at residential, commercial or semi-commercial property and we have seen significant growth in this area, with annual lending on our buy-to-let mortgages up 44 per cent in 2016, despite the stamp duty increase and the uncertainty of Brexit.
In order to help estate agents who may be speaking with clients interested in buying a property to let, we have put together some handy tips that you can share with potential investors.
DO YOUR HOMEWORK
Buy-to-let investors now face an extra three per cent stamp duty on additional properties (ie any property bought in addition to their own home) under new measures introduced last April.
The Government is also pressing ahead with its crackdown on the tax relief claimed on maintenance.
Currently, landlords are able to claim the top rate tax relief on residential buy-to-let properties but this will soon be reduced.
The change will affect higher rate taxpayers who could see thier profits drop significantly. New investors need to nsure they understand what lies ahead so they can plan accordingly. In some cases, investors are turning more to semi-commercial and commercial property as an alternative to residential, which is the target of the changes.
WORK OUT YOUR RENTAL YIELD
Rental yield is the annual rental income as a percentage of the property value, so landlords will need to work this out accurately in order to estimate the profitability of the property.
The Prudential Regulation Authority (PRA), part of the Bank of England, has set out new guidelines on interest coverage ratios (ICRs) that investors need to take into account in their calculations.
The aim of the new rules is to ensure buy-to-let investors could cope with a rise in interest rates and that tenants are protected.
LOCATION, LOCATION, LOCATION
There are various ways to second guess up-and-coming areas, so do your research. Major infrastructure projects, such as HS2, can greatly affect the money landlords make on their investment. Recent research suggests that areas with faster broadband speeds can add up to 20 per cent onto the value of a house, compared to underserved areas, whilst towns with growing universities or similar institutions flourish.
Landlords managing their own properties will need to live nearby to deal with maintenance problems, or pay a letting agent a managment fee to field calls from tenants. They will also have to carefully choose an area popular with renters to ensure the property doesn't stand empty.
CHOOSE THE RIGHT PROPERTY
Investors will need to research the local market and get to know which areas are popular with families or students, for instance.
In town centres it may be easier to rent out a one-bedroom flat, whereas a three-bedroom terrace is likely to work better in a family neighbourhood.
For both location and the property, transport links, schools and leisure facilities are all key factors. Investors looking at an area they're not familiar with should speak to locals and use sites like Rightmove and Zoopla to get some background information and a sense of market rents.
GET YOUR FINANCES IN PLACE
Other than those looking at cash purchases, buyers will need a buy-to-let mortgage. Mainstream banks will typically look at how much rent the property will bring in, as well as age, property type, income and credit history and may have a strict lending criteria.
However, there are alternatives to the high street. Specialist buy-to-let lenders like Together, for example, will consider buy-to-let mortgages on properties such as those in need of renovation that the mainstream banks may not.
These lenders will also deal with a broader range of applications; from customers with complex income streams and the retired to those with a less than perfect credit rating, to give just a few examples.