With average UK property rental prices at an all-time high, the appeal of buying into the BTL market among investors is understandable. Particularly when it comes to flipping homes in need of repair, there is good money to be made on today’s ultra-competitive private lettings market.
Even so, diving into major purchase decisions like these without careful forethought is not advisable. According to those who know the private lettings sector best, there are five equally important contributors to all successful BTL property purchases.
1. Finding the right area
Nothing matters more than location and looking to buy into the BTL sector. But what matters most is analysing not just the current state of a region’s BTL market, but projections for its immediate and long-term future. Just because a specific locality is booming today does not necessarily mean it will be a profitable place to own a BTL property tomorrow.
2. Beware bargains that seem too good to be true
Where a property in a questionable state of repair is being sold for a suspiciously low price, exercise caution and common sense, picking up uninhabitable properties, renovating them and letting them out for long-term gains is the goal of many BTL investors right now. But where there are major structural issues at play, the extent of the renovations required could turn the whole thing into an entirely unprofitable venture. If it seems too good to be true, it most likely is.
3. Don’t set your sights too far afield
Ideally, you should be setting your sights on a project located no more than an hour’s drive from your home. Technically speaking, it is perfectly possible to employ a site manager and a lettings agent to oversee things on your behalf from any distance. Even so, it will always be more complicated and time-consuming to manage a project in an almost entirely ‘hands off’ capacity from a remote location. Do not overlook far-off investment options entirely, but prioritise those in your locality.
4. Acknowledge your capabilities and limitations
If this is your first BTL investment, seek independent advice and support from the right people. Speak to an established broker to discuss the funding options available, and ensure you are in a comfortable financial position to cover the full costs of the project. If possible, consider starting out with something small and in need of modest repairs/renovations at best. Try to avoid the temptation to dive in at the deep end, as you may end up biting off more than you can chew.
5. Find the right lender for you
Joining forces with an established independent broker will also help you find the perfect lender to suit your requirements. There are countless funding options available for BTL investments and subsequent property development projects. Some are short-term in nature; others can be repaid over the course of several years (like a specialist Buy To Let mortgage). Which represents the right option for you will be determined by your current financial circumstances, your personal preferences and your long-term objectives.
You may choose to purchase through a company, in which case you would need to take out a limited company buy-to-let mortgage.
Mortgage availability and criteria also differs if you are based overseas, so your location should be considered before applying for certain mortgages.
This differs from a buy-to-let mortgage, which hinges on different factors such as the rental income you expect to generate from the property.
You will typically need to be receiving around 125 – 145% of your mortgage costs in rental payments.Lenders will also consider how many properties you have in your portfolio, as the more properties you own the more difficult it is to obtain finance.
If you own over 4 properties, you are considered a “portfolio landlord” and you will be subject to stricter regulations.Some lenders will stipulate that you can only have a certain number of properties in your portfolio.
Others base their decision on the loan to value ratio, and others demand that the ICR for every property be above a certain percentage.Most buy to let mortgage lenders would require you to be earning your own income too, this minimises their risk as you still have a possible way to afford mortgage repayments.Buy to let mortgages for first time buyers It is possible for first-time buyers to obtain a buy to let mortgage, but you may need a larger deposit.
We predict that this pent-up demand will result in a surge of buying in the first half of 2020.We expect modest property price increases in 2020 and a few bodies such as The Royal Institution of Chartered Surveyors have predicted rises of around the 2% mark.
We expect this will be followed by sharper increases in future years when trade deals have been negotiated.
Rightmove has predicted that prices will rise more drastically in the north, and we think more specifically the north west.Movement in first-time buyers The modest increase may be encouraging for first-time buyers.
An increasing number of mortgage lenders are giving access to 5% deposit mortgages and lending on 40-year mortgage terms.The consistent demand from first-time buyers coupled with the shortage of supply and lack of house building should push house prices towards an upwards trajectory.Landlords to retain their portfolios During the general election, one of the main concerns we noticed was from landlords on the impact of a Labour government.
One policy which was dropped just before the general election campaign was to bring in a radical “right to buy” scheme that would allow private tenants to buy their rented home at a “reasonable price”.
Currently we are aware that new legislation will mean properties with an energy efficiency rating of F or G will not be able to be rented out, and landlords will no longer be able to claim tax relief on mortgage interest payments.Around 52% of landlords are hopeful that they will see an increase in their rental yields this year, indicating a renewed enthusiasm for the sector.
