Why is buy to let so popular at the moment?
Brexit uncertainty, tax changes, higher stamp duty....it seems to me that buy to let investors have had it rough over the last 5 years. There has been plenty of press coverage about the sector being under pressure and landlords selling up and I have no doubt that there are plenty of examples of this being true.
So why is it that we are doing record numbers of buy to let mortgages at the moment? I honestly cant remember a time when we have done more remortgage and also purchase business on investment properties....and I should add that those remortgaging are generally (not all) releasing equity to invest in further properties.
I thought it would be pertinent to share why I feel there is so much activity and investment going on.....
1) Borrowing is cheap!!
Buy to let mortgages are generally taken on an interest only basis and at present, and for the foreseeable future, mortgage rates are exceptionally low. As an example you can borrow £100,000 for as little £115 per month.
With costs of borrowing so low it means returns can be very attractive indeed!
You also don't need huge deposits to get into buy to let as mortgages are readily available at 75% loan to value and still relatively easily available at 80%. You can even borrow 85% ltv on a buy to let but rates are quite a lot higher!
So borrowing is plentiful, relatively easy to obtain and is very inexpensive.
2) Returns are high (despite changes to taxation)
Well this does depend on what you buy and where, but savvy investors are finding that they can generate excellent returns. Let me give you an example of a house one of my clients purchased recently. It was a two small two bed terraced house in the Midlands (he was from Kent)
My client invested a deposit of £32,500 with stamp duty and buying costs adding about another £5,000 so a total of £37,500
With a rent of £800 per month and taking into account letting agents fees, maintenance and insurance as well as his mortgage costs he still made a healthy £500 per month profit.
Allowing tax he was still clearing approx £400 a month. He pointed out that if he put £37,500 in the bank he would never get £400 a month interest on his money, but with the property he would earn that amount every month!
Even after tax the return on capital invested was a very healthy 13%
3) Don't forget growth!
We may be in uncertain times with house prices very static, but since the financial crash of 2008 house prices have increased by 35%
So my client....if prices do the same over the next 10 years (and no one has a crystal ball - so this is by no means guaranteed) should benefit from around £40,000 on his little house. If we add the rental profits (after tax) of £400 per month over 10 years (£48,000) to his projected growth (£40,000) that's a return of £88,000 on an investment of £37,500 over 10 years a whopping 135% return!
4) What a time to buy!
Everyone has heard Warren Buffets quote of "be greedy when others are fearful" and at this point in time when we have uncertainty over Brexit, uncertainty over the economic outlook and a very static housing market there seems to be plenty of opportunities around.
What I am seeing day to day is property investors snapping up property through both estate agents and auctions at very good prices. These investors are seeing real value in buying now at suppressed prices with a bounce back in prices almost inevitable once the Brexit is in the rear view mirror.
Summary
So in summary, if we look at property investing like baking a cake, we seem to have all the ingredients. We have pretty good conditions for investing in property with a static market creating numerous buying opportunities at suppressed prices, cheap lending, strong rental returns....and with the added possibility of a bounce in prices in the coming years
Want to find out more about buy to let mortgages or have any other mortgage questions? Please get in touch!
>>>> 07740 284270
>>>> [email protected]