Buy-To-Let. The Basics

The strategy of buying residential property and letting it out to tenants, began when people began to realise that the capital growth they were seeing on their own home was phenomenal. Investors realised that if they could purchase multiple properties, they could multiply the returns they were seeing, whilst using tenants to pay the mortgage for them.

This concept has existed for many years, however the first buy-to-let mortgage was offered in 1996, making buy-to-let investing accessible to everyone, not just cash purchasers. Today there are over 850,000 buy-to-let mortgages in the UK, worth more than £90bn.

There is much speculation as to the future of the buy-to-let market, and you should be careful to consider what is fuelling the market before investing in it. Demand for rental property is being fuelled by immigration, a high divorce rate, greater workforce mobility and an increase in people living on their own. Added to this is a huge discrepancy between the number of new houses needed each year, and the number of properties actually built. Alongside this already rising demand for rental property are the increasing interest rates and house prices making it more difficult than ever for first time buyers to buy onto the property ladder.

Buy-to-let has quickly become a simple alternative to existing and traditional strategies of developing long term financial security. Many people are beginning to understand the instability of workplace pensions, and the low return on investment that cash savings will provide, and are therefore looking for an alternate to relying on these for income once retired.

It is important when considering a buy-to-let investment property to remember that although the main objective is to benefit from capital gains on the property (the average growth since 1953 has been 9.3%), it is beneficial to ensure that any rent received covers the mortgage payments. In addition to this, most investors expect to receive somewhere between 120%-150% of the mortgage payments through rent, to cover other costs such as interest rate rises, maintenance costs and void periods.

For more advice on how to be successful with buy-to-let investments, why not sign up to our newsletter which is dedicated to helping you learn about property.