Buy-to-let property has become one of the investment stories of the past decade. At its peak, a rush of new lenders entered the buy-to-let marketplace, leading to better products, higher standards and greater choice for prospective buyers. The credit crunch however, coupled with recession, has led to a sharp decline in demand; nevertheless, buy-to-let remains an option for long-term investors, despite prospective landlords now finding it harder to obtain a mortgage.
Before you enter the buy-to-let market, you will generally need a deposit of at least 25% of the property’s value. Lenders will want to know the property’s rental potential, details of your salary and of any other properties owned. The rates charged on buy-to-let mortgages are also higher than on mainstream loans, so careful selection is essential. Many landlords opt for an interest-only mortgage but capital repayment is also an option. Some might even combine capital and interest elements. Like any flexible mortgage, however, this approach can be more expensive than standard interest-only or full repayment deals, and therefore needs consideration.
One of the problems of recent times has been that the rental market has become overcrowded and levels of rental income do not always meet expectations. Consequently, some landlords have struggled to meet mortgage payments, an issue which can be exacerbated if a property is empty for any period with no rental income at all. You therefore need to be sure you can cover such eventualities before you get involved with this aspect of property investment. We always recommend that individuals should seek independent tax and financial advice before pursuing a buy-to-let opportunity—you should of course also seek expert legal advice.
Steve Martin is a Partner and Head of Conveyancing at Watsons.
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