BUY-TO-LET IN THE UK

A major factor that has revolutionised rental properties in the UK has been the introduction of the Buy to Let scheme in 1996. Before this date it was not possible to rent out mortgaged property, at least not without the express permission of the mortgage lender. High-interest bank loans were the only means of raising revenue for investment properties. But now it has become possible to obtain a mortgage especially devised for the investment landlord, and related only to property not intended as a personal home.

This scheme, which has proved extremely successful, has brought a new type of landlord into being: the middle-class small investor who is neither grasping nor greedy, but who wants to do something more interesting and tangible with some spare money than putting it into pension schemes, stocks and shares.

Buy-to-let investors in the UK rent out 70% of their properties to young professionals. There is growing evidence to suggest that the young and affluent are renting more now than in the past. It used to be that people would rent because they could not afford to buy. Now more people choose to rent because they want to. There are lots of reasons why this is happening. For example, the average age of first time buyers has increased, which may mean they are renting for longer before committing to a mortgage themselves. More people move around with their jobs and there are more single occupancy households. All of these people still want a nice place to call home, but don’t necessarily want to be tied to a particular property.

Because they are very often high-earning professionals, or at least used to a good lifestyle, the new renters are extremely fussy, and demand is now for high-quality rental properties, not dismal, damp, dilapidated places with stained carpets, miserable wallpaper and poor furniture.

There are many ways of being a landlord today in the UK and each one has its own pros and cons. And if the service of providing others with rented accommodation is no longer an automatic licence to print money, those who are successful can do very nicely indeed. During 2002, 79% of buy-to-let borrowers stated they would consider adding to their property portfolio, with 64% stating that they would ideally like between two and ten properties. Of the entire buy-to-let properties, 39% are flats, 32% terraced houses, 20% semi-detached houses, 6% detached houses and only 3% bungalows.

TOP TIPS FOR UK BUY TO LET SUCCESS

• Do your homework. Make sure you know which type of property will let well. Remember it is not always the most expensive properties that give the best returns. It all depends on local demand.
• Do your sums. Think about how much you can afford to invest, work out how much your monthly mortgage repayment will be. Rental income should cover at least 125% of the monthly mortgage payment.
• Do speak to the right people. For example, letting agents can give some idea of the type of properties that are renting well in any particular area and can also offer help by giving a general indication of rent levels.
• Do ensure you budget for ongoing costs. These will include maintenance, the cost of repairing or replacing fixtures and fittings and buildings insurance.
• Do think of buy-to-let as a long-term investment. There will be no ‘get rich quick’ rewards, but you will have an additional property at the end of it all.
• Do budget for void periods between lettings, where you do not have any tenants and therefore no rental income.
• Do not underestimate the initial cost of your investment. As well as the deposit, you will need to cover solicitors’ fees and other typical home buying costs.
• Do not ignore the fact that you will be running your own business and as such will need to adhere to certain legal and financial requirements.
• Do not rush into anything.