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Buy-To-Let - Pros & Cons

Date Published 29 May 2018

If you're looking to break into the property business then a buy-to-let can be a great venture but there are a few pros and cons you need to consider first.
• Property is still a relatively safe investment. Over the long-term prices should still increase and you will end up with a profit. House prices can fluctuate & differ according to region and area, but property values are nearly 20% higher than they were 20 years ago & 263% higher than 20 years ago which is positive.
• Affordable locations are tipped for growth so choose your area wisely.
• The rental market is strong and there's very unlikely to be a shortage of people looking for decent private rented accommodation in the medium to long term as unfortunately those who will never afford to buy property themselves is growing.
• Renting out your property to tenants who will pay your mortgage for you & also provide some extra income is the key to a successful buy to let venture.
• If you take advantage of a low buy to let mortgage rate you could increase your profit further & it will mean your monthly payments will be lower, so your profit margin will be better.
• Despite the lack of tax relief & stamp duty buy-to-let is still a great option for starting your own business. If you get to know the property industry, do your research & know the market well you can make some savvy investments.
• Mortgage lenders, HMRC & the government are becoming a lot stricter on landlords borrowing & profit potential. New rules from Bank of England's Prudential Regulation Authority (PRA) mean that from October 2017 lenders must look at a landlord's entire property portfolio when deciding whether to approve buy-to-let applicants. Landlords with more than 4 properties that are already mortgaged will be required to submit all their financial details on each property before being considered for a new mortgage or finance.
• Tax reliefs for landlords have also disappeared. Relief available on mortgage interest started to be capped at a basic rate of 20% when previously reliefs of 40%-45% were available for higher earners. By April 2020 all landlords will be affected by this.
• Insurance Premium Tax (IPT) rates were put up from 10% to 12%. IPT is payable on all general insurance policies which includes buildings insurance for which landlords are responsible.
• Letting agency fees could be banned from early 2018 so landlords are going to need to find other means of funding credit checks and inventories on their properties rather than the money coming from the tenant's pockets.
• From April 2018 landlords starting new tenancies must prove their property has a minimum EPC of E. As of April 2020, all existing tenancies will be affected.
• The housing market is uncertain, a healthy housing market requires economic & political stability, something which Brexit & rising interest rates could put under threat.
• Having a buy-to-let property does mean that you will pay extra stamp duty. Since April 2016 if you buy an additional property (a buy-to-let or holiday home) you will pay an extra 3% stamp duty. Unlike regular stamp duty the extra 3% is charged as a flat rate on the entire cost of the property.
• There is no guarantee that your property will always be occupied & that would mean that when the property is empty you will need to make the mortgage payments yourself.
• You are responsible for maintaining the property & you will need to be around 24/7 in case your tenants have a problem. You could pass your property over to an agent to manage it for you and then you wouldn't need to worry. We can look after property needs if this is something you require. Contact us!