With much talk in recent days about mortgage interest rates, a potential drop in house prices, the cost of living, and how the pound stacks up to the dollar, you’d be forgiven for thinking the property market is on a downward. However, as our recent blog covers, it’s far from doom and gloom.
For long-term investment such as buy to let, the money is still there to be had. Despite tax changes and tougher regulations over the last few years slowing the buy-to-let market a little, putting your cash into bricks and mortar is a great way to watch it grow.
Being a landlord doesn’t come cheap though. Setting yourself up or continuing on as a property investor has its responsibilities and costs, but with big benefits. We outline both sides here:
Costs
Mortgage
For those buying with a mortgage, a higher deposit is required for buy-to-let mortgages, generally at 25% or above, with some lenders now offering 80% LTV. The rates available start at around 2.3% (£350,000 property, 25% LTV, 25-year interest only mortgage, 2-year fix). Don’t forget there’s a higher rate of stamp duty for second homes at 3% on top of the standard rates. You’ll also be paying tax on the rental income, and can no longer claim relief from the interest paid, which is especially frustrating when using an interest-only mortgage.
Upkeep
Anyone who’s owned a property knows they’re not free to run. Buildings insurance, a boiler on the blink, service charges and storm damage—all these require landlord input to cover. Using an agent like Orchards can take the hassle out of all sorts of issues. Having insurances for unoccupied periods too could outweigh the cost to put in place.
Regulations
Properties planned for the rental market will need to be hot on energy efficiency and electrical safety for example. Yearly gas safety checks and ensuring decent insulation will need to be factored into profits. We offer different lettings service levels to help you on your way, to remind you of important dates, to organise inventories, to correctly process data, etc.
Benefits
Mortgage
Although rates aren’t at their lowest, they’re a long way away from their highest. By using an interest-only mortgage, monthly repayments are often lower. When the likelihood of a property being in negative equity over a long-term period is slim, reducing monthly output for a years-long investment may make sense. For a simple way to work out your return on investment, divide the annual rent by the purchase price, then multiply by 100 (£1,500pcm on a £350,000 property would be just over 5% ROI).
Upkeep
As annoying as it can be to fix or replace appliances, by having a property in good condition, this helps in the long run for future value, or even running costs should you need to move in yourself one day. Think of a house like a car; drive it safely and service it regularly.
Regulations
Knowing your property is in full working order is priceless, as is knowing you’ve adhered to every rule in the book. When time = money, by delegating to an agent like Orchards, we do the work for you.
For information about the local buy-to-let market, or to talk about your investment options, contact us on 01525 40 22 66 or email ampthill@orchards.co.uk
