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Is a buy-to-let still a good investment?

Latest News and Updates November 25, 2022 540 Views
Is a buy-to-let still a good investment?

Should I invest in buy-to-let?

To answer this question we’ve teamed up with Tom Ravenscroft from Thomas Honour Mortgage Services, their crack team of advisors can give you all the information you need, if like many around the country, are asking themselves this very important question.

To start off, a little about Tom.

Hi, I’m Tom, I’m a CeMAP qualified Mortgage Advisor and home-buying specialist at Thomas Honour Mortgage Services. My job is to essentially help people invest in property and build their portfolios. This ranges from experienced landlords all the way to first-time buyers. I have relationships with all of the lenders in the UK mortgage market and access to all of their interest rates, giving you unrestricted advice and finding you the most suitable deal.

Is a buy-to-let mortgage different to a normal mortgage?

Yes, a buy-to-let mortgage is different to a residential mortgage. For starters, with most buy-to-let mortgages you need a deposit of at least 25%, whereas for residential you can do as little as 5%. The affordability is also calculated slightly differently. For a buy to let a lender will calculate your affordability on the predicted rental income of the property but residential is calculated on your income figures.

So, what do I need for a buy-let mortgage?

If you’re looking to purchase a buy-to-let the basic thing I would expect to see would be a 25% deposit, and good credit always helps, but having access to the whole of the market I can work with lenders who may be able to help regardless of credit score, some lenders require a minimum income which is typically around £20,000-£25,000, and others have no minimum income.

What expenses do I need to think about when deciding to invest in a buy-to-let?

There are a few associated costs that need to be taken into account when investing in a buy-to-let and it’s important you understand and factor these potential costs into your budget. Stamp Duty Land Tax may be applicable, subject to if you are a first-time buyer or current homeowner, the amount of this cost is dependent on the price of the property and if you have any additional properties in the background. You can use online calculators to predict what your stamp duty may be. Legal fees (solicitors) are typically around £1000 – £2500, the price is usually dependent on the scale of the property purchase £150,000 vs £1,500,000, and product fees may also apply (typically £999).  

To add to this, you should also factor in costs that can occur further down the line. For example, once you’ve completed the purchase of your property you will need an energy performance certificate, gas safety certificate, electrical installation condition report and finally Legionella risk assessment.

Should I use an interest-only or repayment mortgage?

This depends on your investment strategy, whether you are investing for income or capital growth. Landlords will use interest-only mortgages to provide them with a monthly income surplus whilst repayments will have minimum surpluses each month, but as you’re repaying the capital, you own the property at the end of your mortgage repayments. This makes a repayment mortgage more profitable in the long run but it’s a much longer investment strategy.

At Thomas Honour, we will talk you through both options and ensure your repayment method reflects your investment strategy.

Should I use a limited company for my buy-to-let?

The decision of investing in property via a LTD company should be discussed with your accountant. Many of my landlords that are higher rate taxpayers and/or have a portfolio of properties invest via an LTD company as this provides them with tax benefits.

My recommendation would be to speak with an accountant before you decide to invest in your personal name or via an LTD company.

To summarise, are buy-to-let properties still worthwhile investments?

Each purchase needs to be carefully considered based on the type of property, the age of the property, and the potential rental yield. However, property is generally a very sound investment. Historically over a 5-year period house prices have continued to rise despite peaks and troughs. A good managing agent like Clarke Properties knows the market inside out and will ensure you’re getting the most from your investment.

Due to the current housing shortage, it’s very unlikely your property will be empty.

A massive thank you to Tom and the Thomas Honour team, check them out here!

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