Are you looking at buy to let investments? They can deliver a good return, but before you dive in, we share some thoughts for you to consider…
The price of property remains very high in the UK, particularly in the South East of England. The cost of housing means taking the first step on the property ladder is unachievable for many people, so renting remains a popular option. That, in turn, ensures the demand for rental properties continues to be high.
From an investor’s perspective, property can be seen as a safe investment strategy, with a better return than bank/building society accounts.
So, what do you need to know before you take the plunge?
Typically, you will be expected to put down 20-25% deposit if you are raising a mortgage. The mortgage is based on the rental income you expect to receive. We usually work with providers who specialise in buy to let mortgages and are therefore more sensitive to the nuances of this market.
When you are looking at properties you need to consider whether you want to look after the property yourself or use a letting agent.
If you decide to manage it, then you will be responsible for arranging all of the maintenance required on the property, and any fixtures or fittings inside. You will need to organise for repairs, servicing, decoration etc. And you will need to stay in regular contact with your tenant to arrange everything.
If you use a letting agent, they organise any work that is required and liaise with the tenant. They charge a fee for doing this, which will be taken from your rental income. They very often collect the rent on your behalf too, which can be helpful, but does not guarantee you will be paid.
And on that subject, you do need to consider what will happen if the tenant refuses to pay you.
Getting your property back when there is still a tenant living there, is very difficult – the law perceives it as the tenant “owning” the property, and the burden of proof is often on you.
If you purchase property that is suitable for local authority tenants, you can arrange for the local authority to pay rent directly to you. But there are still challenges, so please do your homework first.
When doing your calculations, you need to factor in possible void periods – when your property may not be rented out. You will also probably want to carry out re-decoration, and repairs, in between tenants, to make it an attractive proposition for a new tenant.
There have been recent changes in taxation for buy to let property.
You are no longer able to offset the mortgage costs against your rental income. That means that the full rental income is taxable, in line with other income and your tax band.
When you decide you are ready to sell the property, it is likely that you will be liable for capital gains tax (CGT). This applies if you sell the property for more than you purchased it for, and it is not your main residence. Should you be liable for CGT, this is payable within 30 days of the sale of the property.
So, are we saying don’t do it?
No – because it might be the right approach for you. But we want you to do your research and be prepared before you go ahead.
If you would like to discuss buy to let investments and mortgages in more detail, please contact us on 01344 875 310.