The buy to let market has for a number of years been booming. However, recent changes has seen a slump in activity due to tightening of tax legislation, stamp duty surcharges and changes to mortgage lending policy. Why are tenants and locations now two main factors to ensure your property investment stands the best chance of success?
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
The private rent sector is thriving
Figures obtained from HomeLet show that the number of landlords in the UK has increased by 7% to 1.75 million in 2013-14. This figure is now expected to be around 2 million.
Similarly, figures published in the English Housing Survey suggest that around 4.3 million households were privately renting in 2015-16.
One of the main reasons why the private rent sector is thriving is because house prices are outstripping wage rises and people cannot afford to buy their own property.
Spanners in the works
The buy to let market has recently been hit by a number of tax changes though. Extra stamp duty is applied on the purchase of additional properties and landlords are no longer able to offset all interest gains against their income tax. This change means investors profits are significantly reduced.
However, if you plan properly, the buy to let market can still provide a healthy income for many doctors and dentists.
Property investment considerations
If you are new to the market or are considering expanding your portfolio of buy to let properties, there are a couple of things that will probably influence where and what type of property you will purchase. These being, type of tenant you want to rent to and location.
Location
Choosing the right location will be key in determining how much income and profit you will make from renting the property. Many first-time landlords are tempted to purchase a property in their local area because they know the local area and they feel safe in the knowledge that they can easily ‘keep an eye’ on the property.
However, if you are prepared to look outside your local area you may be able to increase your return.
If you are looking at an area you do not know, consider things like, what the Ofsted reports are like for the local schools, is there a good transport network and even look up crime statistics. All these factors will determine if people want to live in the area.
Type of tenant
Your decision on what type of property you want to buy could also be shaped by the type of tenant you want to rent to.
If you want long term tenants, then you should be focussing on renting to families who want to settle in an area for a while. The type of property that families look for have 2-3 bedrooms, are near local schools and amenities.
If you want to rent to students, you need to consider properties that have around 4-5 rooms that can be rented out individually, that are close to the city centre and that have good transport links.
Other things to consider
When purchasing a buy to let property you need to view it as an investment. It is very different than when you are looking for a home. With this in mind you should also consider:
- don’t become emotionally involved with the property search
- is the area in an upcoming area?
- will the rent cover your costs?
- is there the potential to build capital in the property?
- how long will it take to find tenants?
Need to buy to let mortgage?
If you are looking for a buy to let mortgage, speak to specialist mortgage broker, Chris, who can research the market for you to give you the best options.
Tel: 01403 780 770