The Council of Mortgage Lenders last week reported a surge in demand for buy-to-let mortgages at the end of 2015. This trend is set to continue into 2016 as investors rush to beat the April deadline when the Stamp Duty for second homes is being hiked.
Buy-to-let is particularly popular amongst those Mid-Somerset self-investors who are looking for a safe haven for their pension pot as bricks and mortar is perceived to be a safe long-term bet.
There are many things would-be buy-to-let investors need to consider. For the benefit of first-time buy-to-let investors here are some important tips.
1. Research the Market
What type of tenants are you targeting? What type of property is best for your chosen audience and what property features are important to them? Which areas are likely to give the best returns over the length of time you plan to invest? (Hint: it may not be in or around your home town).
2. Shop Around for Finance
Your mortgage will most likely be the single biggest expense that will affect the return on your investment, and different deals from different providers can vary a lot so it is worth putting time and effort into making sure it is as low as possible. Don’t make the mistake of talking to only a few providers, and certainly don’t just take whatever your current bank or provider of the mortgage on your home offers you – though it is worth speaking to them to see if they offer any attractive packages for existing customers. Compare as many different deals as you can in order to find the best.
3. Account for Costs
Whilst your mortgage will probably be the biggest expense associated with your investment, it will not be the only one. There will be the cost of preparing the property to let, the cost of marketing the property and placing your tenant and the cost of planned maintenance and repairs. Consider also whether you want your property to be managed for you. Many landlords (and tenants) prefer this as it makes for a very hands-off investment, but management fees will represent another expense you should take into account.
4. Invest for Income
While this is not universal, most first-time landlords will probably find it is better to invest for income, at least in the short/medium term. Property is rarely if ever a short-term investment anyway, so whilst the likely capital growth of your investment should be considered, it should not be the primary factor. Rental yields, on the other hand, contribute directly to your income throughout the time you hold your investment.
5. Plan for the Worst
While nobody likes to dampen the excitement of their first property investment with pessimism, it is important to have contingency plans before buying an investment property. In particular, have an exit strategy for when you want to liquidate your investment again, whether that be planned ahead or a response to some unexpected development. You may one day be very glad that you were prepared from the the start.
About Tom Morgan
Founder of Jungle Property the multi award-winning letting agent based in Glastonbury, Somerset. I am passionate about property and Glastonbury and about providing the very best advice to anyone who wants the best return on a buy-to-let property investment. For an open and brutally honest opinion on anything in the Glastonbury property market please contact me via tom.morgan@jungleproperty.co.uk
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