If you’re looking to invest, then the buy-to-let market is probably already an option to you. It’s become increasingly popular after the recession as it was before. However, it’s always remained a debated issue.
Many have appealed for landlords to encounter higher taxes and stricter regulations. This is down to the large amount of young people looking to buy their own homes, but facing high rents instead.
By analysing the market, those who are already landlords, or looking to become buy-to-let investors, can weigh up the benefits against the potential problems these properties could cause.
Why buy-to-let boomed
David Hollingworth, of broker London & Country believes that shortage in housing, high demand for rental accommodation, and poor returns on other types of investment have brought buy-to-let back.
He says: “The stars are aligning once again for buy-to-let. [But] today’s investors are different. They know they might not make big capital gains, but their savings have been decimated by poor interest rates and they have lost faith in their pension. This is why they are renewing their love affair with bricks and mortar.”
Managing Director of Landlord Mortgages based in Wokingham, Lee Grandin, agrees with Hollingworth, and says that the new investors are 40-50 year olds.
“The significant increase in house prices during the property boom years has led to people viewing their property as an asset,” he explains. “These investors are using released equity as the deposit to buy another property.”1
On the matter, Chief Executive of Leeds-based group Eddisons Residential, Graham Bates, says: “New entrants are not wealthy individuals, they are hard-working professionals. Many see buying to let as a way to give their children financial security and an income stream for their own retirement.”
Some lenders, particularly Bradford & Bingley, suffered during the last buy-to-let trend. However, lots are now supporting the industry. The number of groups offering landlord mortgages rose 20% last year, say the Council of Mortgage Lenders. Mortgage rates are also decreasing, with the average buy-to-let mortgage now 4.69%, likened to the 5.04% rate last year, and 5.77% in 2010.
“Lenders initially pulled back. They have now returned and are keen to lend to landlords, who tend to have big deposits and dependable rental income,” says Hollingworth.1
Landlords need an average deposit of at least 25%, and they must have a rental income of at least 125% of the monthly mortgage repayments.
Lobby group Pricedout represent aspiring first time buyers and contest buy-to-let. They say that landlords are worsening the problem that young people have with buying property. Pricedout would like to see more taxes for landlords of multiple properties, as well as construction in response to the housing shortage.
Bates says: “You can’t blame this group for preventing first time buyers from getting a foothold on the ladder.
“It’s the mortgage lenders’ stringent criteria and demands for a huge deposit at a time when there is real value in the property market that is squeezing out first time buyers.
“Landlords are filling an important gap and will need to continue doing so if we are to get to grips with the UK’s chronic housing shortage.”1
Charlotte Rhodes became a buy-to-let landlord in 2000. She was prepared in knowing what kind of tenant she wanted to let to. Trained as a knitwear designer, Charlotte, 49, had recently divorced and had two young sons. She used her creativity to make homes appealing to successful professionals.
Now, Charlotte has a portfolio of seven properties within the suburbs of Leeds. Living nearby, she manages them all herself.
“My parents always invested in buy-to-let, so taking that first step wasn’t too daunting,” she says. “At that time, city centre apartments were popular among buy-to-let investors, but I felt this market was over-saturated so I opted for the leafy suburbs instead.”
Charlotte continues: “It proved a good move because the combination of excellent commuter links and good schools means I always have high-calibre tenants who take care of my properties and pay the rent on time.
“Over the years, buy-to-let has proved an excellent investment for me. While my properties have dropped in value since the recession, I am enjoying an excellent income stream, far greater than if I had taken out other traditional investment plans.”
Charlotte would also like to provide a stable financial future for her sons: “Buying to let is not easy, but as a single mother, it allows me the flexibility to run my own business around family life.”1
Lahrie Mohamed left his job as an accountant to become a full-time landlord, after 15 years. His passion for period properties prompted the change.
He turned a hobby into a thriving business with a 300-strong property portfolio in Walthamstow, northeast London.
Lahrie, 47, explains his decision: “Pensions don’t appeal to me; I don’t like the fact you can’t take money out when you need it or pass it on to your dependants. But property, however, is a tangible asset. In the early days I didn’t look at the numbers, it was just a hobby.
“I would take time from work to refurbish a property and then move on to another. I believe that my success has been down to choosing the right area. Walthamstow has excellent commuter links. Tenants who can’t afford to pay central London prices can rent a larger property that is only 20 minutes away from Green Park by tube.
“This close proximity to the centre of London means my tenants are of the highest calibre and look after my properties.
“Buying to let is not a short-term investment, especially in today’s market. You have to take a long-term view and work hard every day for your tenant. It’s not for you if you don’t enjoy meeting people, or if you get annoyed with minor irritations such as a tenant’s boiler breaking down.”
“It’s like running a business; you need plenty of passion, drive and enthusiasm,” says Lahrie.1
Neil Bookatz’s incentive to join the market was a will to provide financial stability to his four children. He entered the market in the early 90s.
Currently, Neil, 54 and his 52-year-old brother Stuart have a total of 100 properties across East London, and are expanding into the West End, where they have flats in developments including Marconi House on the Strand.
Neil comments: “We bought our first property at auction and we have never looked back. Stuart and I are East End boys, so we knew the area well. House prices had plummeted to rock bottom, so we took a gamble. It paid off and we were quickly achieving annual rental yields of about £5,000 on an £11,000 property.
“As time passed we saw big opportunities, but the difficulty in those days was the banks refused to lend us money to expand.”
However, specialist buy-to-let lenders were just joining the market.
Neil says: “Call it luck or call it judgement, but we enjoyed a triple-whammy; mortgage rates came down, house prices shot up, and the East End became gentrified
“In the early 2000s, we saw another investment opportunity. Property investors were exiting London, but we stepped in.
“It wasn’t long before central London was booming again, and we were in the right place at the right time. There are still investment opportunities to be had, particularly in London where international students and wealthy people are pushing up property prices and rents.
“I would recommend to anyone investing in buy-to-let to choose a property in an area they know well and can get to within half an hour.
“I know a lot of people who moved out of their comfort zone and bought properties in other cities, but it all ended in tears because they were not hands-on.”
Neil reminds landlords not to ignore the negatives, however. “Over the years we have experienced prostitution rackets, drugs raids and even shootings,” he says. “You have to be prepared to put up with the hassle as well as the upsides.”1