Is Now The Right Time To Buy To Let?
While the current housing market is proving tough for homeowners at the moment, the Royal Institution of Chartered Surveyors (RICS) suggests that the continued fall of house prices is likely to encourage more people to invest in property. With predictions suggesting house prices will fall by as much as 2 per cent by the end of 2011, more are taking advantage of cheaper property and looking into entering the buy to let market.
At the end of the day, it pays to look at the long term in regards to investment in property. While housing prices are low now, they can only grow in the long term, which means that your property will gain positive equity.
The Buy to Let (BTL) market isn't for everyone. You need to think about it carefully as a business proposition. There will always be a sizeable initial outlay (specialist BTL mortgages usually need a deposit of at least 25%, and other costs such as arrangement fees are normally higher too), and you need to be prepared for monthly outgoings too - not just mortgage payments, but letting agent fees, landlord insurance and so on.
For those who are in a financially sound situation though who feel they can meet the expenses and various requirements, property investment can prove to be extremely lucrative. The demand for homes to rent is at an all time high as lenders tighten their restrictions over mortgage applications. You certainly won't be short of interested tenants!
If you are interested in dabbling in the Letting Market but are unsure whether or not it will be a long term benefit for your personal circumstance, then you are advised to weigh up the following specifics. First, determine your projected rental income, this, above all, will highlight if the investment will be worthwhile in the whole. Also, calculate how much you'd intend to charge in rent and compare this with current rental costs on the market. Finally, you must predict what your ongoing spending will consist of, for example maintenance, insurance etc.
In order to work out these exact figures, it is advisable to seek help from an independent financial adviser. However, if you would like to try it out yourself, the basic calculation is as follows: Total projected rental income minus Total annual costs divided by Total initial costs. So these include all of the factors mentioned above such as the initial deposit, the mortgage repayments, letting agent fees and general maintenance and repair fees including initial decoration and furnishing required at the beginning of a tenancy.
As this calculation provides a sound estimate, it also gives you some flexibility to change some of your values in order to account for variations. For example, fluctuations in house prices, lender terms and an increase or decrease in how much you intend to charge in rent. The various projected outcomes will allow you to determine if your investment will be beneficial no matter what the market conditions.
Although many of us are reluctant to go through a mortgage broker, they do have their uses when it comes to looking at Buy to Let mortgages. Due to the specialised nature of BTL lending, you're frankly unlikely to find the best deals from a high street bank or building society.
Find a broker who works on a fully independent 'whole of market' basis, and preferably one who works on lender commission rather than charging you a fee. Also look for a broker who has proven Buy to Let experience - they'll not only find you the best mortgage, but you might find they provide other useful advice too, especially if this is your first venture into the Buy to Let market.
Clearly, investing in property doesn't come entirely free of risk, although there are hints that 2011 could be the year for property investment. Renting out property provides a regular second stream of income and as the economy slowly recovers, you are guaranteed property appreciation over time. So, is now the right time to invest? If you have the funds to support the investment, then why not?! What's life without a little bit of risk?
About the Author
This article was written by financial expert Timothy Frodsham, who writes for http://www.justcommercialmortgages.com who specialise in finding the best commercial mortgage rates for all their customers.
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