For years in the UK, real estate has been an asset class that has continued to deliver security and viable returns to investors nationwide. Real estate also offers tremendous flexibility to investors, who can either ‘flip’ houses or invest in properties that are subsequently rented out depending on their circumstances.
The property market has taken something of a hit in recent times, particularly in terms of buy-to-let purchases. In fact, the last quarter of 2018 saw buy-to-let yields hit a three-year low in the UK, while this figure also declined by 5.6 per cent in the previous three months.
While the UK’s buy-to-let market may have been impacted by higher tax liabilities and regulatory changes, it may still remain a viable option for some investors. In this article, we’ll provide a breakdown of the buy-to-let market while asking whether or not this investment vehicle is right for you.
What is a Buy-to-let Mortgage?
As explained in detail by lettings firm Andrews Online, buy-to-let purchases refer to the procurement of property with the intention of renting this out to a tenant.
As you won’t be living in the property yourself, it’s important that you fund your purchase with a specialised residential mortgage rather than a standard residential product.
There are a couple of important factors that separate these two products, starting with the requisite deposit. While it’s possible to secure a residential mortgage with a deposit of around 10 per cent, for example, buy-to-let products demand a more significant upfront commitment of between 25 and 30 per cent of a property’s value.
This could rise to as much as 40 per cent in some instances, such as when mortgages are secured on an unusually low interest rate.
The buy-to-let mortgage offer itself will also be based on a number of different factors, with the potential rental income of the property in question offering a prime example. Lenders will also consider whether or not this is your sole or primary source of income, with other earnings and assets factored into the final offer.
Is Buy-to-let Right for You?
With this and the recent depreciation in the buy-to-let market yields in mind, the question that remains is whether or not this investment vehicle is right for you?
The answer depends on your own personal circumstances, although it’s fair to say that this remains a viable investment option in some instances.
We touched earlier on low interests rates, and if you’re able to access these while laying down a sizeable deposit then a buy-to-let investment can definitely deliver a viable return.
However, we’ve seen interest rates increase to 0.75 per cent during the course of the last year or so, impacting on the potential of even wealthy investors to achieve a profit from buy-to-let properties.
This is an important metric to watch in the future, as you look for a value-laden deal that can help you to achieve your objectives through buy-to-let investment. You’ll also need to appraise your own circumstances, including the amount of capital that you have and your existing portfolio.