For those weathering the storm of the financial markets and who are in a position to buy a second property or a buy-to-let investment property, now may be a good time to do so. Property prices have plunged and a investment buyer may pick up a cheap investment property at approximately 20% less than the asking price a year ago.
Provided an investor is not caught in negative equity and can put down a good deposit, once the buy-to-let property has been purchased, the rent received may be enough to cover the mortgage payments and even offset some of the maintenance costs or agent's fees.
Buy-To-Let-Mortgages – What Are They Exactly?
Buy-to-let mortgages are specifically designed so that investors can borrow money to purchase property in the private rented sector, with the purpose of letting it out to tenants.
Buy-To-Let Mortgage Criteria
Investors who wish to purchase a buy-to-let property are subject to standard checks and usually faced with extra restrictions from mortgage lender. These lenders base their decision to lend on factors such as the likely rental income from the property and they want reassurance that the property can be expected to grow in value. The following criteria generally needs to be satisfied in order to secure finance:
- The rental income must generally be at least 125% of the mortgage repayment. For example, if the loan repayments are £600 per month, the rental income needs to £750.
- The rental income must generally provide an annual yield of more than 8% of the mortgage.
- The borrower will be required to have a minimum 15% deposit to put down and own a main residence property.
Tips to Find Cheap Investment Property
- Property prices have plunged in the last year. There are more repossessed homes available than ever before and also agents are desperate to sell and will certainly be willing to negotiate if an investor puts in a lower offer.
- Look online, in newspapers and what is on offer at the agencies around the area. Keep an eye out for auctions going on in the area.
- It is a good idea for an investor to buy an investment property close to home in case problems arise, its easier to sort out than if the property is on the other side of the country.
- Research the rental market thoroughly. Contact a local agency, get some facts about local market conditions and find out what rentals would be feasible.
- Don't necessarily purchase an investment property based on personal taste, rather on what is potentially good for tenants such as area, local services, bus / train routes etc. Try to look past problems such as hideous decor, as long as the property is structurally sound. Painting and decorating can be done later.
- Have an engineer's survey carried out on the property.
Once the desired property has been found, a buy-to-let mortgage will need to be arranged. Shopping around carefully and making use of on-line comparison sites to find the best deal or making use the services of a mortgage broker will hopefully result in the best terms and interest rates for the investor.
With careful research in place, and emotional and impulse purchases avoided, there is little reason to doubt that the new investment will prove to be a valuable source of income for future retirement funding.
Source:
Mortgages UK, Article "Housing Market Decline" and "Popularity of Buy-to-let Properties" by Kevin Friend.
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Fleur Hupston - Fleur Hupston is a professional freelance writer based in Botswana, Southern Africa. From this unique perspective, she writes travel ...
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