What is a buy-to-let investment? The Basics You Need to Know

buy to let

Purchasing any residential property with the intention of letting it out can be an appealing prospect. In the UK, estimates suggest there are now approximately 2.65 million landlords operating within the private rental sector.

Does this mean that buy-to-let is the right choice for you?

Before making any major decisions regarding BTL investments, it is important to ensure you understand the benefits and drawbacks of becoming a private landlord.

What is buy-to-let?

The term ‘buy-to-let’ is used when an individual or business invests in a residential property to be ‘let’ out to tenants.

Rental properties are purchased using a specialist mortgage, which differs from a conventional home loan by way of both qualification criteria and overall borrowing costs.

Buy-to-let investments generate profits through monthly rent payments from tenants, which cover the costs of the mortgage and leave at least a small amount left over. Depending on the type of property and its location, rent yields and profits can vary from modest to exceptional.

What are the advantages of buy-to-let property investments?

The biggest benefit of BTL is its potential to generate a regular source of income for the owner of the property. Typically, rent is charged at a rate that not only covers the monthly mortgage payment but also all potential maintenance requirements for the property.

Buy-to-let property owners may benefit significantly from capital growth over time. Average UK house prices have been skyrocketing for some time and are predicted to continue doing so indefinitely. However, again, gains by way of property value increases vary significantly from one property type and location to the next.

BTL investments are considered among the simplest and quickest to exit, should it become necessary to do so at some point in the future. With demand for desirable homes at an all-time high, investors rarely encounter any difficulties selling their BTL properties for their full market value.

What are the disadvantages of buy-to-let property investments?

On the downside, qualifying for a buy-to-let mortgage is not quite as simple as qualifying for a traditional mortgage. There are higher deposit requirements and more extensive restrictions to take into account with regard to who is and is not eligible.

Interest rates and borrowing costs on a BTL mortgage are usually higher than those of a traditional mortgage. Prospective landlords must also take into account additional costs attributed to repairs, maintenance, and the general upkeep of their rental properties.

While demand for quality rental properties is insatiable across much of the UK, potential gaps between tenancies cannot be ruled out. During this period, the landlord is still required to make their monthly mortgage payments in the normal way, though without the benefit of rental income.

Independent expert advice

Before deciding on any BTL investment opportunity, it is essential to consult with an independent broker to discuss the options available. During your consultation, you will have the opportunity to determine your eligibility for BTL mortgage products and whether your financial situation qualifies you for life as a private landlord.

Call or e-mail anytime for more information on buy-to-let investments or to book your obligation-free consultation with a member of our team.