Paul Holden at UCB Homeloans - part of the Nationwide Group Buy to let - what's the story? ...
Buy to let - what's the story?
Buy to let has now become one of the most talked about products within the mortgage market. It has generated interest across a range of borrowers and has inspired many to take the plunge and invest in bricks and mortar.
It is no longer the sole domain of the professional property investor, running a portfolio of properties as a business concern. Buy to let has opened up the arena for everyday people who have capital to invest. Whether it be City high-flyers, business professionals, shopkeepers or the couple who live across the street, practically everyone has access to buy to let mortgages.
Investment properties can be more appealing to certain types of people and one such group is the self-employed. Why? Mainly because the self-employed are used to taking risks, they can run their rental property in a business- like fashion and they tend to have more flexibility in their employment to attend to the day to day tasks associated with rental properties. Middle aged couples are also a prime market for buy to let as they may have a high level of disposable income or may have a nest egg to invest.
Many people are currently receiving a minimal return on money held in deposit accounts due to the UK's current low interest rate climate and are now looking for new ways to fund their retirement needs. Given past market performance, investing in bricks and mortar can seem like an attractive way of bolstering retirement funds, but of course it is a long-term investment that needs to be considered carefully.
Although there are now target markets for buy to let products, there are no limits on who would find buy to let attractive. The Council of Mortgage Lenders has reported a substantial growth in this market in recent times with the latest figures showing a market value of £8.3 billion as opposed to £1.3 billion in December 1999. This has certainly been an emerging market and there are signs that growth is set to continue.
So, does your client really understand the market? Do they have money to invest over the long-term? Do they have savings to cover the mortgage for a few months in between lets? Do they have the time and experience to maintain a property that they won't be living in? These are just a few of the exploratory questions that any logical adviser would ask as potential investors need to understand that buy to let isn't a way to make a fast buck. It takes time, good judgment and a little dedication to make it work.
Of course, many of the day to day tasks such as vetting prospective tenants, collecting rent and even some basic maintenance can be transferred to a letting agent but these services come at a price. So either way being a landlord will take up some of your client's time or money.
There is a whole range of reasons for investing in a buy to let property, and the increase in the number of lenders offering buy to let mortgages has created a competitive market for borrowers with a diverse range of products. The deal that you recommend will of course depend on the client's personal situation. Do they want a fixed rate or are they happy with variable rate options? What sort of deposit do they have to hand? Do they want to raise money from their existing home to fund the deposit and so on? With so many choices you are bound to find the right product for your client.
There is always going to be speculation about the future returns available. Rental yields vary by property type and from region to region and even from street to street so you can't be too definite about it, although most letting agents can give you a fairly good idea. Similarly property price increases vary in a similar way and there are some web sites that provide property price forecasts, but it is really best to leave it to the professionals to predict these and even then there are no guarantees.
Whatever your client's expectations there is one overriding benefit - home ownership. A successful landlord who can keep their property let, will effectively have their property bought for them and once the mortgage has been paid off the rent received will mainly be additional profit. That should be enough to convince most people of the benefits of buy to let!
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