Securing a buy to let investment is still one of the most popular ways to generate an income as well as diversify an asset portfolio. But due to the turbulent economic times of late, many would-be buyers are asking themselves whether buy to let investments are as good an idea as they used to be, before jumping straight in.
Unfortunately, many who bought property during the boom years have struggled since mortgage rates have risen but now it seems that the plummet in house prices, the increase in rents and the choice of new mortgage deals is slowly luring investors back into the buy to let property investment market. The difference these days however, is they will need a much more sizeable deposit in order to do so.
According to UK newspaper, The Guardian, recent statistics from Moneyfacts, Britain’s biggest property valuers, have shown that lenders have cut their fixed rate mortgages to record lows. However, only existing homeowners with large amounts of equity are benefitting from this. Despite the cuts, loans are being declined to anyone on a low or medium income as banks are becoming more careful about who they lend to.
But even if your finances are looking healthy, it’s a good idea to be cautious. Before you sign on the dotted line, consult a buy to let investment calculator and bear in mind that just because property prices are currently on the up, it doesn’t mean they can’t fall back down at any time. Therefore this type of investment cannot be used a ‘get rich quick scheme’.
At present, your buy to let return on investment may be high, mainly due to the fact that many first time buyers are unable to obtain loans to secure a property investment. Buy to let property is currently out of reach for many but one way to avoid disappointment if you have your heart set on entering into the market is to use low leverage on the investment. Buy to let landlords however, will be pleased to know that the tight credit and high prices will mean that more people will be forced to rent rather than buy.
If you plan to opt for hands off approach to buy to let investing, be aware of the costs that using a management company will incur. While they will find tenants, chase rents, maintain and sort out any problems with your property, they will probably charge you 10 – 15% of your overall monthly income for these services. It is also wise to check whether or not they will charge you for insurance on the property and letting it. Make sure you go through all documents from your management company with a fine-toothed comb.