A guide to investing in property

The UK property market
A round-up of what’s going on in the residential and commercial property markets
Buying abroad
How and why to invest in a residential property in another country
Global hotspots
A country-by-country guide to the regions offering the best investment opportunities
Let it right
Make sure you take the right steps to residential property investment

Let it right

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Buying an investment property is very different from buying a home. What Investment offers a guide to making a success of buy-to-let.

Buying a property to let is not something to rush into. Even if you borrow a substantial amount of the purchase price of the house it is likely to cost you a considerable amount to set yourself up as a landlord. You need to be sure it's worth the money. Speak to letting agents in the area where you want to buy to find out whether there is demand for rental properties and how much income you can expect.

The agent should also be able to tell you which are the most popular properties and areas for tenants. “You need to get under the skin of the tenants and the best way to do that is to speak to a lot of agents,” says John Heron, managing director of lender Paragon Mortgages.

Do your sums

Mortgages are available to fund your purchase. Most lenders will ask that the rental income is at least 130 per cent of your monthly mortgage repayments. Some will look at the actual pay rate on the loan, but others will work this out on their standard variable rate (SVR), which is likely to be higher. This means you will need a higher expected rent to secure the mortgage. You need to make sure you have read the small print before you get out your calculator.

Investigate mortgages

When you have an idea of how much you can afford to repay each month you can start looking at mortgages. Many lenders offer mortgages of up to 75 per cent loan to value (LTV) for buy-to-let purchases, but it is possible to borrow as much as 89 per cent LTV. There are lots of special offers around so you can take advantage of a fixed rate or discount in the early years.

If you have access to the internet you can research the best mortgage deals online on a number of sites. Among those offering best-buy tables for buy-to-let deals are our site www.whatinvestment.co.uk and www.charcolonline. co.uk. These sites also offer mortgage wizards so you can experiment with different scenarios.

Find the right property
Remember you’re not buying a house to live in yourself so it doesn’t matter if the property isn’t the type of place you would choose to live in. “Make sure you buy the type of property for which there is a strong ongoing demand from tenants – it sounds obvious but many people don’t,” says John Heron. “There is a much greater demand for a modest two-bedroom flat in a poorer part of town than for a five-bedroom mansion on the edge of town, but people don’t always realise that.”

Recruit a letting agent

Some lenders insist that you use an agent to manage the property; others leave it up to you. For a fee of up to 15 per cent of the gross rental income you can employ an agent to find the tenants, check out their references and collect the rent. “If you want to keep good-quality tenants you need to manage them well,” says Heron. “If the agent is doing a great job it will be money well spent.”

Sort out your tax position

Rental income is taxable: it will be added to your other earnings and tax will be subject to income tax. However, there are a number of expenses that can be offset against the rent you receive to reduce your tax bill. These include letting agency fees, the interest costs on the mortgage and, where the flat is furnished, a 10 per cent allowance for wear and tear.

Charterhouse Communications

www.whatinvestment.co.uk

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