Buy to let often gives an alternative route to getting onto the property ladder. It is important though, to understand what you are entering into if you are looking for a healthy return.
In some areas of the UK, such as London and the south east, aspiring first time buyers are unable to step on to the property ladder. If this is you then you might be casting your gaze elsewhere in the country. You could consider buying a property to let as that may be a better route to get on the property ladder. On paper it isn’t a bad idea. You will be investing in an asset that could serve you well financially for a long run, or even act as a home for retirement. It is important though, before deciding to proceed, that you are 100% aware of your responsibilities as a landlord. You need to understand what your landlord responsibilities are. It is not like putting money into a savings account. Property investments have a tangible effect on other people such as the tenants living in the property.
You should think carefully about whether you are ready to sign up for the commitments of being a landlord. It is important that your tenants are safe and all regulations have been adhered to.
Mortgage Interest Tax Relief
Landlords will not have any mortgage tax relief. This will continue to be phased out until April 2020. It is important that you understand that any income you get will be taxable and speak to an accountant in this regard.
There are regulations for all HMO (Houses in Multiple Occupation) properties. Every HMO landlord will need a license and the property will have to meet certain standards. The Deregulation Act in October made dramatic changes to HMOs. Please read our article in this regard.
Is there a Local Licensing Scheme?
There is a mandatory HMO licensing scheme throughout the country. There are also more than 60 Councils in England that operate additional or selective licensing schemes that are changing all the time.
It is very important that you are aware of what your responsibilities are.
Minimum Space Requirements
The regulations governing a minimum size of bedroom came into force in October 2018. This is so important. If you are thinking of purchasing a property you need to make sure that the room sizes are big enough. You may not be able to get a licence if the room is not big enough or may have to exclude one of the rooms as a bedroom. If for instance you are purchasing a three-bedroom house and could only rent out two of the rooms it would reduce your income dramatically.
Buy to Let Mortgage Trends
Landlords will usually need to prove to their lenders that the rental income will cover the mortgage. The lender will look for a percentage between 140 to 145% of their mortgage payments (known as the interest cover ratio). Some lenders will go as low as 125-130% though. Please see our previous article on Top tips for buy to let landlords – https://harringtonslettings.co.uk/top-tips-for-buy-to-let-landlords/
It is important to remember that the payments of a variable mortgage can go up and down every year. A fixed mortgage will ensure that the payments stay the same for the fixed term.
Energy Performance Certificate
See our recent article on Energy Performance Certificates. There are minimum energy efficiency standards that launched in April 2018. It is important that you are aware of what your responsibilities are.
Right to Rent
The High Court has recently ruled that these are discriminatory to tenants. The Government has not yet decided on how they are going to change the rules or if they will at all. We are all waiting to see exactly what the Government will do. If you are unsure what you can and cannot accept as sufficient right to rent documents please refer to the governments website – https://www.gov.uk/government/publications/right-to-rent-document-checks-a-user-guide
The dreaded word: Brexit
We would love to tell you that the uncertainty around the UKs withdrawal from the European Union won’t affect you but in truth nobody knows for sure what will happen with the property market.
It is so important that you are aware that property is not necessarily a short-term fix. It is a long-term investment like a pension fund.
What is a void period?
This is when your property is empty. The tenants might have left the property to go elsewhere and it has not yet been let. You need to ensure that you have enough income to cover the rent in the interim.
It is so important that you are aware and able to cover your liabilities in the event that the property is empty.
Is it a get rich quick scheme?
No one knows when it comes to property. The trends over the years show that property has anywhere between a four to eight-year cycle. Prices can go up as well as down. It is more like a pension fund in that you must determine when it is best to either sell the property or keep the income as the property price can dip.
If you require insurance in relation to your property, then don’t hesitate to contact us to ensure that your investment is covered properly.