buy to let mortgages
Buying to let
Information on this page is for information purposes only. It is not intended as investment advice
Why Buy to let
Over the long term, property has proved to be a sound and reliable investment.
Property provides the opportunity of investing in something tangible, bricks and mortar.
Buying to let provides both income and the prospect of a capital gain when the property is sold.
Some investors choose to keep their property into retirement as a source of retirement income.
Other investors are happy to keep their property for a period, after which they will sell and realise their capital gain.
Like any investment, you need to choose the right property. Research your market carefully. Your property should be self financing; check that the investment return is enough. If the sums don’t add up then don’t buy.
Property prices are driven by demand. If demand exceeds supply then prices are likely to rise. Currently there is an imbalance between population growth and new housing.
The rental market is also affected by changing work patterns. The government are encouraging young people to study for longer. Students will not be in a position to buy while they are studying
It is difficult to predict where house prices will be in the short term as demand is affected by a number of factors. Property should be viewed as a long term investment. In the short term, property values may fluctuate and if you have to sell in the short term you may sustain a loss.
Keep some money aside to cover periods when the property is not let.
What are the risks with Buying to let
Falling property prices.
House prices in the UK have been very resilient, but falling house prices are a real possibility, particularly in the short term (up to 5 years).
How might this affect me?
If you borrow 80% of the value of your buy to let property on a 2 year deal and house prices decline, you may have have difficulty remortgaging in two years time.
What could I do if this happened to me?
See what your current lender has to offer. Some lenders will base future offers on the original loan to value. Alternatively, you could pay down your mortgage with savings to bring your borrowings within the required loan to value. If you are not able to remortgage or refinance then your mortgage will revert to the lenders standard variable rate
Rising interest rates
Rising interest rates affect the cost of borrowing. They may not affect you immediately if you have a fixed rate, but at the end of that fix, you will need to refinance using the rates available at the time. This may mean your mortgage payment will rise
What could I do if this happened to me?
You may be able to protect yourself from rising interest rates by fixing your interest rates. This protection will only be there until the end of the fixed rate
You may be able to raise your rent. Or you could consider selling.
Otherwise you will just have to tighten your belt!
Tenants not paying the rent
You really need to take this one seriously. If the Tenant stops paying rent you will still need to maintain your mortgage payments.
How might this affect me?
Your income will stop but your mortgage payments will still need to be paid.
What could I do if this happened to me?
Far better to avoid this situation by properly vetting your Tenants and having guarantors (if necessary). Make sure that your Tenancy agreement is legally actionable in the event of default
Talk to your Tenant at an early stage. Try to come to a fair arrangement if possible. You must take legal action if you are unable to agree on a solution
Keep some savings to cover you in the event of non-payment of rent