Buy-To-Let
The Formula
The Buy-to-Let mortgage has been a very successful formula for mortgage companies and for residential property investor landlords.
Originally conceived and developed by The Association of Residential Letting Agents (ARLA) and several mortgage companies, the scheme has since expanded considerably - it is now possible to borrow to let at rates comparable with the traditional domestic mortgage from many sources.
Until the advent of Buy-to-Let lenders viewed residential property investments as a commercial proposition demanding higher rates of interest than domestic mortgages.
In addition, lenders disregarded the rental income generated by the property when assessing a borrower's ability to repay, a situation which now appears to have changed for good.
The popularity of Buy-to-Let has also been encouraged by many other factors covered elsewhere - see The Case for Rental Property.
Rising property values, a volatile stock markets and low interest rates have led to something of a mini boom in Buy-to-Let in the UK residential market, particularly in the South East.
This situation deserves a word of caution: although the UK property market remains strong and generally demand for renting will continue to rise, some areas could easily become oversupplied, bringing down rents and resulting in void periods.
Investors should always take a long-term view with property and they should realise that Buy-to-Let is not a "get rich quick" scheme. Property can generate considerable wealth over time but readers of this site will quickly realise there are many pitfalls for the unwary.
Our advise is proceed with caution and do your homework first. Always consider the downside - what's the worst that can happen? But plan to achieve your up-side target.
As your portfolio grows your risks are commensurately reduced - see Investing in Property in Good Times and Bad!. Problems with a tenancy when you have ten properties only affects one-tenth of your income, where as problems with a tenancy when you have one fully mortgaged unit could spell disaster!
The secret of success is preparation and planning as with many things: do your homework, know the rules and regulations, research the market thoroughly, decide which market you are in, prepare the property well, select your tenants carefully.
Read the article by Derek Stobbs who is a successful Buy-to-Let investor in the midlands.
Warning: Investments in property can go down as well as up in value and it can sometimes take a long time to dispose of properties. Never invest money in property which you may need in the short-term - invest with a long-term perspective.
Never rely totally on this information which relates primarily to England & Wales. Before taking action or not, seek expert advice with the full facts of your case and all documents to hand.
