Welcome to Buy to let
The phrase buy-to-let can refer either to the investment
strategy of buying a residential property to be let for profit;
or to a particular category of mortgage used to purchase a
property for letting.
For many years landlords have invested in residential property
to be let for profit, but since the mid-nineties there has been
rapid growth in the property market leading to a surge in demand
for rental property which is being exploited by many mortgage
providers keen to encourage new amateur landlords.
Benefits and risk
As for all property rental, the benefits for a buy-to-let
landlord can include a stable income from rental receipts, as
well as an accumulation of wealth if house prices go up over
time. Rising house prices in the UK have made buy-to-let a
popular way to invest. The main risk is that the property might
not be occupied for all 365 days of the year, while the owner
still has to pay a monthly mortgage payment. Also, buy-to-let
landlords would suffer along with all property owners should
prices fall.
Yields
Recent research by BDRC for Alliance & Leicester showed that 71%
make a profit, but 29% break even or make a loss.
Buy-to-let mortgages
Buy-to-let mortgages have been on offer in the UK since the late
nineties; they are specifically designed for investors to borrow
money to purchase property in the private rented sector in order
to let it out to tenants.
Lenders take different approaches. The amount of money investors
can borrow is determined by the rental valuation of the
property. Usually the annual rental income has to cover a
certain percentage of the mortgage repayments, somewhere between
120% and 150%. This is to allow surplus rent to cover other
costs such as property maintenance and void periods (periods
when there are no tenants living in the property and therefore
no rental income).
Typically the interest rates that are offered on BTL mortgages
are fairly close to residential mortgage rates but will on
average be higher and typically charge higher fees. This is due
to the perception amongst banks and other lending institutions
that BTL mortgages represent a greater risk than residential
owner-occupier mortgages.
This type of investment has become very popular in the UK over
the last five years or so, as house prices have dramatically
increased. Another reason for their popularity is the tax
advantages that are available to UK BTL investors. Rental income
is considered in the same way as salary, and is therefore often
taxed at 22% or even 40%. However, landlords can deduct costs
from the taxable portion of their rental income, and these costs
can include the interest portion of their BTL mortgage
repayments as well as maintenance costs on the property. This
tax set-up has made BTL investments more popular over the last
few years.
Recent credit problems have had some investers maintaning the
same percentage of equity in the property should prices fall and
so rapidly find money to cover these downturns
Effects on Society
In the UK, "buy to let" has attracted some negative publicity.
It has been described by some as the epitome of what is wrong
with British society. The basic ideas behind buy to let
(according to this analysis) are "How do I get someone else to
work for me?", "How do I get money without having to work?" and
"How may I leverage my privileged position to enable me to make
further gains at the expense of my fellow citizens?". This forms
much of the basis of real estate investment. Buy to let owners
(it is argued) can effectively do little work and yet still
receive substantial incomes, not only making money from rent,
but potentially realising large capital gains on the sale of
their housing stock. The suggested result in the UK is that of a
wealth divide never seen since Victorian times. Buy to let, as a
form of real estate investment, together with complicit lending
practices and legislation, has arguably been one factor behind
the huge rise in house prices in the UK since the late 1990s.
First time buyers frequently struggle to get a foot on the
housing ladder.
One suggestion is that the main reason for rising house prices
is one of straightforward supply and demand: the number of
households has been rising faster than the number of homes. In
these circumstances, there are increasingly too few homes to go
around, and the price is forced up. This trend has been the case
in Britain since 1992. A counterargument to this, however, is
that rents have not increased in line with house prices, which
is what one might expect if a genuine shortage of dwelling units
were the sole or main reason for the increase in purchase
prices.
Another suggested effect of BTL is that buy to let landlords
tend to buy property that the first time buyer would otherwise
have tended to buy therefore forcing up the price in this market
and forcing the FTB to rent a property of a landlord rather than
being able to buy the property instead which has been shown.
This would make BTL a type of monopolistic strategy.
General disillusionment with the property market has resulted in
the boundaries becoming blurred between the perceived dangers of
buy-to-let, the existence of a property bubble and the global
credit crunch that has made it harder to obtain mortgages at
attractive rates for some customers.
Assured shorthold tenancy
One of the key innovations required for widespread property
investment was the reform of tenancy agreements and specifically
the introduction of the assured shorthold tenancy (AST)
agreement.
Buy
Property
A major benefit of the free web templates is an ability to
download them for free. Although free web templates don't cost a
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Sell Property
A major benefit of the free web templates is an ability to
download them for free. Although free web templates don't cost a
penny, they can be of a high quality.