Buy to Let – UK Market
The buy to let sector hit its peak in the UK around the beginning of the millenium with property prices rising to unexpected peaks fuelled by over-optimism and the increasing availability of buy to let funds. This situation in the financial market fuelled a surge in would-be investors speculating on cashing in on the increasingly upward trend in the market, and this further compounded what was essentially an already overly-optimistic market.
One of the downsides of the increasing property prices is that this has made it increasingly difficult for some sectors of the population to get onto the property ladder. Coupled with rising population figures, especially in the cities, due to the increasing number of overseas settlers, this has increased demand in the rental market. In addition, the buy to let market has been further driven by the tax advantages that are available to UK buy-to-let investors. Her Majesty’s Customs and Excise (HMRC, formerly the Inland Revenue) treats rental income just like a salary, and is therefore taxed at 22% or 40% for those in the higher tax bracket. In addition, landlords are permitted to deduct costs from the taxable portion of their rental income, and these costs can include the interest of the buy to let mortgage repayments as well as maintenance costs on the property. These incentives have made the buy to let property sector very attractive for both professional investors and amateurs looking to make the most out of their savings.
Would Be Investors
The buy to let market peaked in 2007 and then became relatively saturated in many areas across the UK with too many properties available to the market. While buy to let is generally not a good idea for people who do not possess some extra budget (investors are always quick to point out that buy-to-let is no short-term profit scheme) there are still alot of remortgage deals which will fund a deposit for a property. If you are worried about losing money during void periods, and you should be, then many companies will provide insurance which can deliver as much as six months mortgage re-payments in the event of a property being unoccupied.
Buy to let trends differ across the country and from one area of town to another. Having the skills and knowledge to identify a hotspot is the key and good advice for potential investors is to visit the local letting agents who should be able to tell you who is renting what at the moment so you can identify your target audience. The Thames Valley and M4 corridor for example, where there is high employment through contract work, has alwasy been a lucrative area..
Investors need to consider what they are trying to gain – income or capital appreciation? If you’re looking for capital appreciation you can afford to be more flexible with your rent since you wont generally be relying on an income from a tenant. You should be able to charge rent that undercuts the going market rate for the area so there’s always demand. If you want to generate an income then you need a good return so you’ll need to be sure you’ve got reliable tenants paying rewarding rents. In each case, you need to keep in mind that buy-to-let is not a get rich quick scheme. You need to look to the long-term, a minimum of five years but more realistically ten years or more.