Talk of investing in bricks and mortar and fortunes made from buying property to let used to fuel dinner party conversations.
At the peak of the buy-to-let boom in August 2007, according to Moneyfacts, borrowers could choose from 3,662 mortgage products.
Lender appetite and investor demand quickly dried up following the credit crunch. Lenders pulled back from the market and withdrew thousands of products while even the most savvy of investors started to get spooked.
Now the market is a little more buoyant, so too is the confidence of potential landlords.
What is buy to let?
Buy-to-let is an investment where you buy a property, usually with the help of a mortgage, in order to rent it out. When you rent out your property you become a landlord and with that comes extra responsibility. You will be responsible for carrying out repairs, ensuring the safety of gas and electrical appliances and making sure that the fixtures and fittings meet the necessary fire safety requirements.
Profits from renting out property are also taxable, so you will have to pay Stamp Duty when you buy your property, Income Tax on the rental income you receive and Capital Gains Tax when you sell it.
Finding the right deal
Before you take the plunge you’ll still have to find the right deal and that could prove difficult. Since the credit crunch hit, lenders have continued to tighten criteria and have restricted the number of properties a portfolio investor can have, as well as the maximum total that they will lend to an individual landlord.
Typically you’ll need a decent deposit to secure the best deal – there may be less competitive deals around for those with a lower deposit however most lenders will expect you to have between 25-40% of the property’s value available as a deposit.
Research the market
Just like buying your own home, choosing a buy-to-let property is all about location, location, location. Find out about the demand for and supply of rented property in the area you want to buy - letting agents can help with this or you can do this yourself.
Depending on the type of tenant you are trying to attract generally, your property should be close to local amenities, shops, transport links and possibly schools if you’re hoping to attract the family market.
Getting a buy-to-let mortgage
For first-time landlords it's wise to adopt the same approach to a buy-to-let mortgage as you would a normal mortgage. Don't just walk into a high street bank as they will have a limited range available, and may not have any products available at all for your circumstances.
To make sure you can access the entire market you’d be wise to speak to an independent financial adviser or independent mortgage broker.
Charges for buy-to-let mortgages are normally higher than those for your own use. Lenders will calculate how much they are prepared to lend by taking into account how much rent the property will produce – they’ll generally be expecting around 125% of the monthly mortgage interest payment.
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Things to look out for
You should always try and keep aside enough cash - around three months' rent - in order to continue making mortgage payments during any periods when you don't have tenants and the property is empty, and to cover unexpected repair costs.
Using a letting agent to find a tenant for the property will normally cost you between 5% and 10% of the rental income. If you use a managing agent to look after the property you can expect to pay around 10% to 15%.
As with a normal residential mortgage you should review your mortgage arrangements on a regular basis - this could save you thousands and help manage your finances. Again, an independent financial adviser or independent mortgage broker can help you do this.
How much you can borrow will determine the size and type of property you can buy.
However, you will also need to ensure that you can afford the property's upkeep. For instance, does the property need much work doing to it? Can tenants move in straight away?
Although property can offer a good pay-off it isn’t always a wise investment, so it's advisable to do your homework first.
No quick fix
Buy-to-let can still make financial sense if you buy wisely and have affordable finance. But DO research the market first and always look at buy-to-let as a long-term investment - it’s not something you should consider as a short-term gain.
It's worth remembering though that buy-to-let is not without its pitfalls.
Tenants have rights and the wrong type of tenants could soon turn your buy-to-let dream into a nightmare.
Read more: How to find the right tenants
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