With house prices forecast to rise and low mortgage interest rates, many landlords are choosing this time to build their property portfolios.
Prior to the first lockdown, some buy-to-let investors sold up due to changes to tax and legislation that affected their profit margins. But today most landlords believe buy-to-let is a profitable long-term investment. 79% of landlords think they will still be landlords in five years’ time and more first-time landlords are entering the buy-to-let market than ever.[1]
Here we talk about how the pandemic has affected the buy-to-let sector and whether now is really a good time to invest.
Is buy-to-let a strong capital investment?
Nearly every city in the UK is expected to see accelerated capital growth from 2022 onwards, most notably in the North of England.[2] The population of the UK is continuing to grow and there are too few homes. This trend of supply outstripping demand is likely to continue into the long-term.
Buy-to-let landlords seeking long-term property investment are more likely to benefit from the market’s prospects for capital appreciation.
Is rental yield rising?
The average rent on a newly let property in Great Britain was 4.4% higher in March 2021 than it was in March 2020.[3] Outside London rents have risen annually by 6.8%.[4]
It is likely that the demand for rental housing will continue into the future. Property management company, Verismart believe that by 2045 renters will account for 55% of the housing market.[5]
Seven Capital predict that by 2039 renters will outnumber homeowners.[6]
Tips for getting the best buy-to-let deal
The buy-to-let market offers good returns for investors who purchase properties with the potential for significant capital growth and strong rental yields.
Consider rental yield
Before you invest in a buy-to-let calculate your rental yield. This is the profit you will make from rent taking into account the purchase price of the property and the cost of any refurbishments you make.
Ideally, you need a yield of at least 7% to be able to meet the cost of mortgage repayments, repairs, ongoing costs such as insurance and any unforeseen costs.
Choose the right location
Purchase a buy-to-let property in an area where the demand for rental property is strong. Property websites such as RightMove and Zoopla can give you an idea as can talking to local estate agents and letting agents.
One of the main effects of the pandemic and subsequent lockdowns is that it has changed where tenants want to live. As restrictions ease many people will return to the office, but there are also a growing number of businesses that are keeping flexible and home working structures permanently.
Pre-pandemic, people who moved out of London kept their searches to a 25-mile radius so they could easily travel to the office. Now, however, they are widening their searches to a 40-mile radius.[7] This means buy-to-let investors have opportunities to invest in more affordable properties outside the commuter belt.
In the North East region of the country, the property market is currently booming and there is a huge demand for rental properties. Newcastle has a rising population and over 14,000 new jobs are expected to be created in the next 12 years. With property prices lower than nearly every city in the UK it has become an attractive place for buy-to-let investors.[8]
Invest in the type of property renters want
The type of property renters are looking for has changed since the pandemic. Lockdowns have led to people wanting more space around them. A garden and a spare room for a home office has become more of a priority than proximity to transport links.
Pre-pandemic the most searched for rental property was a two-bedroom flat, but now it is a two-bedroom semi-detached house.[9] More than 90% of tenants aged 25-34 consider the number of bedrooms a determining factor when they choose a property.[10]
The type of property most in demand in your chosen location will depend upon the type of people renting properties there. For example, students and young professionals will have different priorities than families. It is important to carry out thorough research.
How to get on the buy-to-let property ladder
The first step is to organise your finances so you know what property you can afford to buy and maintain.
Find a buy-to-let mortgage
When you buy a property to rent you need a buy-to-let mortgage. Buy-to-let mortgages are more expensive than ordinary mortgages because they are considered higher risk. However, if you take out an ordinary mortgage you could be committing mortgage fraud.
Mortgage lenders usually ask for 20% to 40% of a property’s value as a deposit and they generally only agree a mortgage where rent will cover 125% of the mortgage repayments. Most buy-to-let mortgages are interest-only so you only pay off the interest each month. The balance is payable at the end of the mortgage term.
The good news is that the Bank of England interest rate is currently low and buy-to-let mortgage rates have fallen due to increased competition for business between lenders. [11] Many landlords are choosing to take advantage of low mortgage interest rates at the moment.[12]
Consider other expenses
As well as finding money for the mortgage deposit there are other expenses to consider when purchasing a buy-to-let. These include professional service fees such as conveyancing and surveying costs. You will also need to take into account other initial costs such as stamp duty, landlords’ insurance and obtaining gas and electrical safety certificates.
You will need to set up a contingency fund in case a tenant falls into rent arrears or something in the property breaks down. It is advisable to put aside 25% of your gross annual rental income for this.
To find out more about the expenses involved, see our Guide for first-time landlords.
Why instruct a specialist buy-to-let conveyancer?
Purchasing a buy-to-let is more complicated than planning a normal house move. There are unique legal and financial implications to consider.
A buy-to-let conveyancer will check there are no restrictions in place that will stop you from renting out a property. They will advise you about stamp duty and they will make sure you have the right mortgage. They will check you have met your legal obligations as a landlord by having the correct insurances and safety certificates in place before you find tenants.
Your conveyancer can continue to support you after property completion. They have the expertise to advise you about planning permission, tenancy agreements, health and safety, ongoing maintenance and more.
Obtaining specialist professional advice from the outset is the key to a successful buy-to-let investment.
Why choose Insight Law buy-to-let conveyancers?
Our specialist conveyancers have extensive knowledge of the buy-to-let market in Bristol and Cardiff. We can advise you whether you are a first-time landlord or you already have an extensive property portfolio.
We understand the strict profit margins involved in buy-to-let and take the time to understand your business. By identifying potential issues early on we minimise the risk to you, and we can continue to advise you long after you receive the keys.
Our team are specialists in the Buy-to-let sector and advise both Landlords and Lenders on the security of properties. This allows us to keep up to date with the ever-changing rules and regulations that Landlords are bound by. Furthermore, to ensure that we can protect your investments as best we can, to ensure they are suitable investments for you the landlord and suitable security for your lender.
Contact us to discuss – 02920 093600 or on email at btl@insight-law.co.uk
[1] Buy Association, Buy-to-let remains profitable investment for many property investors, https://www.buyassociation.co.uk/2021/04/16/buy-to-let-remains-profitable-investment-for-many-property-investors/
[2] Property Industry Eye, The buy-to-let boom is far from over, https://propertyindustryeye.com/the-buy-to-let-boom-is-far-from-over/
[3] Buy Association, Buy-to-let remains profitable investment for many property investors, https://www.buyassociation.co.uk/2021/04/16/buy-to-let-remains-profitable-investment-for-many-property-investors/
[4] Buy Association, Buy-to-let remains profitable investment for many property investors, https://www.buyassociation.co.uk/2021/04/16/buy-to-let-remains-profitable-investment-for-many-property-investors/
[5] Property Investor Today, The big question – is buy-to-let still worth investing in? https://www.propertyinvestortoday.co.uk/breaking-news/2021/2/the-big-question–is-buy-to-let-still-worth-investing-in
[6] SevenCapital, Investing in UK buy-to-let in 2021, https://sevencapital.com/buy-to-let-property/investing-uk-buy-to-let-property/
[7] Property Price Advice, How Has Covid-19 Changed Buy-to-Let? https://www.propertypriceadvice.co.uk/moving-home/how-has-covid-19-changed-buy-to-let
[8]Property Reporter, Is it still worth investing in buy-to-let? https://www.propertyreporter.co.uk/landlords/is-it-still-worth-investing-in-buy-to-le.html
[9] Letting Agent Today, Lockdown one year on: Renters search for space says RightMove, https://www.lettingagenttoday.co.uk/breaking-news/2021/3/lockdown-one-year-on-renters-search-for-space-says-rightmove?source=newsticker
[10] Property Price Advice, How Has Covid-19 Changed Buy-to-Let? https://www.propertypriceadvice.co.uk/moving-home/how-has-covid-19-changed-buy-to-let
[11] BuyAssociation, Good news for landlords as buy-to-let mortgage rates continue to fall, https://www.buyassociation.co.uk/2020/01/21/good-news-landlords-buy-to-let-mortgage-rates-continue-to-fall/
[12] The Telegraph, Buy-to-let mortgage rates plunge to fresh low, https://www.telegraph.co.uk/property/buy-to-let/buy-to-let-mortgage-rates-plunge-fresh-low/