Despite planned changes in Government legislation, buy to let investment in the private residential property sector continues to attract very high levels of growth – with much of it coming from first time landlords.
And to help novice investors with their first step on the rung of the property ladder, leading lettings specialist, Belvoir, which has an office on Parkgate shopping centre in Shirley, has produced its own A – Z of tips on the language of buy to let, along with useful advice on how to get started.
All indications are that the current market remains buoyant and for people considering their first foray into the sector this could be the right time to do it.
A new report by data analyst, Moneyfacts, says that with average mortgage rates at record lows, the number of buy to let deals in the UK has hit a seven year high with the figure surpassing 1000 for the first time since 2008.
It’s believed that in part, this boom has been fuelled by increased demand from pension’s savers who have decided on a buy to let investment strategy following the new pension freedoms.
But in a separate survey, results suggest that at the other end of the demographic spectrum, almost half of 18 to 39 year olds say they believe buy to let is currently their preferred investment opportunity, with approximately 4 million people in this age group actively trying to buy into the market.
The Council of Mortgage Lenders also reports that buy to let lending for house purchase has performed more strongly than home owner loans for much of the current year.
However, in a sector which is constantly undergoing change, leading property management group Belvoir, which has over 160 offices throughout the country, says that it is more important than ever to secure the right mortgage deals, choose the right kind of property and location suited to the type of tenant you expect to attract.
To help new investors make the right decisions about their property purchase, Belvoir offers free, initial advice and guidance to anyone wanting to understand more about what and where to buy in their area, the risks and rewards of buy to let and the ‘mechanics’ of property letting, such as referencing tenants, letting the property legally, on-going maintenance and protection of the property.
The four key stages for any investor are:
• Buying the investment property
• Preparing the property to let legally and for maximum rent
• Letting the property
• Cashing in on the investment, by selling or taking income
“A knowledgeable buy to let investor who has taken the time to fully understand the market is much more likely to be successful financially,” says Gareth of Belvoir Solihull.
“In line with other types of investment such as cash, bonds and share ventures, people interested in buy to let are generally a lot savvier now than they were ten years ago. But the market has changed and investors need to understand fully what they are entering into and what they can expect to get out of it.”
To that end Belvoir Solihull has compiled the following A-Z glossary to help future buy to let investors understand some of the key phrases and issues they need to be well briefed in.
• Assured Shorthold Tenancy Agreement – A contract between the landlord and the tenant which provides limited security of tenure to the tenant and an absolute right for the owner to take possession.
• Below Market Value – In theory this is buying a property at a price lower than it would sell on the open market. In reality a property is worth what someone can afford to pay for it at the time of sale.
• Capital Growth – The rate at which the value of a property increases over a period of time.
• Deposit – A sum of money paid by the purchaser towards property purchase. Currently averaging at around 25% for new buy-to-let mortgages, but different rates vary amongst providers.
• Equity – The current market value of the property less outstanding mortgage.
• Fire Safety – An essential consideration for any buy to let landlord. Definitive guidance on a landlord’s responsibilities is provided by the Local Government body, LACORS. (http://www.lacors.gov.uk/lacors/NewsArticleDetails.aspx?id=19844)
• Gearing – Describes overall equity levels within a property portfolio and indicates the debt level against its value. If gearing is high there is very little equity in the overall portfolio. If gearing is more than 75% a buy-to-let investor may find it difficult to re-mortgage.
• Housing Act – Lays out current legislation and standards for housing conditions and the assessment of hazards.
• Inventories – Carried out at the start and end of a tenancy, they not only list all fixtures, fittings and furnishings, but also record (photographically) the condition of – and any subsequent damage to – each item. Important in disputes.
• Joint Application – Proposal for shared ownership of a property by two or more people who subsequently take joint responsibility for repayment.
• KFI (Key Fact Illustration) – Explains all terms, conditions and features of the mortgage – cost of the mortgage, monthly payment amounts, interest rates, penalties etc.
• Licensed House in Multiple Occupation (HMO) – Landlords with properties let to five tenants or more, who are unrelated and not from the same direct family, and who share facilities such as toilet, bathroom and kitchen need to check with their local authority about a HMO licence, as there may be a variance in the definition of a HMO by different authorities.
• Monthly Repayment – Set money paid each month to the lender for the outstanding loan balance.
• Net Rental Yield – This is a post-purchase calculation of the total rent received minus the expenses the property incurs, expressed as a percentage of the property’s value.
• Outgoings – Current outstanding debts such as mortgage, insurance, maintenance fees etc.
• PAT Safety Testing – The Electrical Equipment (Safety) Regulations 1994 requires that all mains electrical equipment (cookers, washing machines, kettles, etc.) supplied in rented accommodation must be safe. Landlords should have all equipment checked at the start and end of each let and obtain and retain test reports.
• Qualified Mortgage Broker – Qualified to provide expert advice on the mortgage products available to a landlord. Some are independent whilst some are tied to a financial institution.
• Rent Arrears – Payments received after the date due or after the services have been provided.
• Stamp Duty Land Tax – Payable when land/property is purchased for more than a set price.
• Tenancy Deposit Schemes – Since 2007 all deposits taken by a landlord must be safeguarded by one of three Government approved schemes. Landlords are free to choose which one they use.
• Utility Bills – Landlords must provide the essential services of gas, electricity and water, but tenants are responsible for the fuel and water they use. These utility bills can be paid by the tenant, or the cost included in the rent. Care must be taken by landlords not to be left with unpaid bills.
• Voids – Any time during which a property is not let out to tenants and not producing rental income.
• Wealth management – A service offered by a qualified financial advisor that helps landlords look after all their personal finances, including existing income streams, assets, insurances and finances related to their property portfolio and overall tax implications.
• X-Ray Examination – When a landlord assesses all operating costs before making a decision.
• Yield – Yield is the rate of return on your buy to let investment and is calculated by taking the gross or net income and dividing it by the value of the property.
• Zero Mortgage Balance – Investors looking to maximise income should aim to fully repay the mortgage as soon as possible to achieve maximum returns.
“Buy to let is, and always has been, a highly profitable market for well organised, well informed landlords. We predict that in this resurgent period of growth, responsible lending, borrowing and property management will combine to continue to make it one of the safest and most viable investment options in the UK today.”