Buyers - Buy to let Buyers
Investing in the UK property market can be a lucrative industry to enter into. For some, managing a large property portfolio can be a full time job, and for others it can contribute an additional income allowing you to plan for retirement. Whatever the reason to invest in the property market, there are a number of costs and benefits that any investor should consider.
- Stamp duty in England and Wales is payable on value over £125,000 (stamp duty payable varies between (1% - 7%) of the property value. However, there are different rules if you are buying a second residential property and buyers should look at the government website.
- Agent fees
- Solicitor fees
- Conveyancing costs
- Landlord obligations such as: Gas Safe certificates, Electrical Certificates, EPC Certificates.
Buyers - Buy-to-let Mortgage
Unless you have the capital to purchase a property out right, you will need to find the right buy-to-let mortgage. These types of mortgages are very similar to residential owner-occupier mortgages, and can be fixed, or based on a variable tracker.
It should be noted that lenders tend to offer rates at higher margins on buy-to-let mortgages. When assessing applicants in these cases, the banks’ criteria will differ from owner-occupier mortgages. Lenders focus on the property rental income, rather than the applicant’s income, to determine the amount they are prepared to lend on the property.
Applicants have many payment options that lenders can offer. The two main payment options are as follows:
Here at Star Estates & Lettings Limited, we strongly advice our clients to shop around to get the best rates available in the market. After 24 years, we have great relationships with a number of mortgage brokers, who can help you find the latest deals available. Applicants should contact our office for further information.
- Interest only basis - which includes payments of interest throughout the loan term, with a lump sum of capital payable at the end of the life of the loan.
- Capital repayments and interest - this involves the repayment of capital and interest. This option aims to pay capital on a monthly or quarterly basis, which reduces the loan amount throughout the life of the loan.
Market Research and Yields
The most important decision you’ll make when purchasing a property, and the one that will influence all your other decisions during the buying procedure, is who you want your prospective property to be rented to, and how much you’re going to rent it for. We strongly advise our clients to do some research on the area in which are looking to purchase a property, in order to understand the types of people renting properties in that area, as well as how much they’re typically paying.
Ultimately, the market you’re looking to capture will determine what you can charge, and what type of property you’ll need to invest in.
Investors also need to consider whether they are looking to receive a high annual yield, or high capital growth, and should aim to have a careful balance of risk and return. Properties with high rental yields tend to be in less desirable areas, and therefore do not bring the highest capital value. Our experienced consultants will help you to understand the areas you’re looking to buy in, and assess the risks involved.
Macro and Microeconomic Property risks
Property values change over time, due to a combination of complex political and economic conditions - hence why Investors should have a careful balance of risk and return. The following information details some of the risks investors need to consider when purchasing a property.
Tenant default risk (Micro risk)
Prospective landlords must ensure that they understand the risks that may arise when tenants default on their rental obligations. Tenants pay rent to landlords from their earnings, and should the tenant default on their obligation to pay the rent, the landlord can take possession of the property. Therefore, investors can loose rent from the tenant defaulting, as well as further income whilst waiting for the premises to be let again. Our experienced property managers will always be on hand to ensure that risks are minimised in situations such as these, whilst our rental guarantee scheme [include hyperlink to section further down the guide] can ensure monthly rent for 3 years regardless of whether the property is occupied.
Inflation risk (Macro risk)
Inflation results in the decline of the purchasing power of money. In most cases, when inflation rises the rate of return on investment falls. However, unlike other asset classes, such as shares and bonds, properties are generally positively correlated to inflation therefore, value of the asset generally increases.
Interest rate risks (Macro risk)
Investors need to take interest rate fluctuations into consideration when investing in property, and should be aware that their property may be repossessed if repayments are not kept. A sudden increase in interest rates can increase the cost of borrowing, and reduce the your return on investment. For this reason, landlords should try and find balance of the cost benefit of fixing their loans.
**Star Estates & Lettings Limited gives notice to anyone reading these particulars that: these particulars and any pictures represent the opinion of the author and are given in good faith for guidance only and must not construed as a statement of facts.**