Q. Most people view buy-to-let as an opportunity to invest successfully in the property market. What is happening in this niche sector at the moment?
Recent figures from ARLA (Association of Residential Letting Agents) show in the earlier part of this year the average value of a buy-to-let loan increased by one-third to £102,000, but the number of loans taken out fell slightly. This suggests that fewer landlords are entering the market at present, but those that do are buying more expensive properties.
Since 1996, buy-to-let has grown from having virtually no presence in the market to an industry worth somewhere in the region of over £7bn in lending. Most areas throughout the country (although there will always be some exceptions) have been showing a balance between supply and demand although, not surprisingly, London and the South East are short of all property types to rent. Buy-to-let is still an option for the careful investor who is prepared to commit for the long term, but it is not the only option for making the most out of investing in property.
Q. If borrowers do want to buy property to let, what factors should they consider?
The location and type of property is paramount ‘ a home a borrower would buy to live in will not always make a good rental property. It is important for brokers when advising on buy-to-let to have a good knowledge of property in the area and which particular locations and accommodation are in demand. Smaller houses and flats make good rental properties. They are easy to maintain and appeal to professionals and young couples who make up a large amount of the rental market.
Although investing in property should be viewed as a long-term investment, some borrowers may be interested in immediate income growth. For example, student lets can give good income return, but they are often in locations that do not offer good growth potential in the long term, whereas a flat in a good area in London may not have good immediate income but does offer real long-term potential.
Any borrower choosing to become a landlord needs to be aware of the cost implications such as repair and upkeep and the laws and regulations that the property will need to adhere to, such as fire and safety. Those lenders that offer buy-to-let mortgages include: Verso, Paragon, Mortgage Brain and Bristol & West. Lenders happy to consider student lets include Mortgage Express.
Q. What are the benefits of investing in property abroad?
Buying a property abroad is obviously a lot more complex than purchasing property in this country as there are different laws and requirements to consider. It is often difficult for brokers to advise in any level of detail in this area unless they choose to specialise, but it is still possible to give clients basic guidelines.
The latest information from the Council Of Mortgage Lenders shows that more than one million households in England already own second homes and the number is set to rise over the next two decades. Although a large majority of these second homes are in England, the continuing strength of sterling is making it more affordable for Britons to buy second properties overseas.
As well as the usual fees for buying property, including surveyors, lawyers and stamp duty, buying property abroad is further complicated by professional fees, taxes and insurance which are universally more expensive than in the UK. Many borrowers fail to get adequate advice before buying oversees and the added complexities and language barrier can make the process extremely complicated.
Q. If I do have a borrower who wishes to invest in property abroad, which lenders are favourable to this type of loan?
Abbey National is one of the few banks with a European presence and offers mortgages in the local currencies in France and Italy. Barclays, Norwich & Peterborough and Woolwich will also consider lending on properties overseas. When it comes to buying property abroad as an investment, there are the obvious benefits of having an income from the property through letting when you are not residing in it. However, it is also important for the borrowers to bare in mind which type of currency they take the loan out in.
If clients borrow in the local currency and it falls against the pound, payments will increase. Likewise, if individuals borrow in sterling a loss will be incurred if the property is sold when sterling has subsequently risen in value against the local currency. It will then mean that the borrower is able to buy fewer pounds back with the proceeds of the sale.