Buy to let – What to consider

With buy to let lending taking up an increasing share of the mortgage market, up from 12.9% in the last quarter of 2012 to 13.4% in the first quarter of 2013, it seems that more and more buyers are keen to enter the rental market.

For many people, having a portfolio of buy to let properties acts as a source of ongoing income and potentially provides a nest egg for the future if the properties increase in value.

With many buyers also struggling to get a foothold on the property ladder, buy to let landlords have also been able to capitalise on continued demand from ‘generation rent’ – would-be buyers that have had to continue renting because of financial constraints.

However, there is a lot to consider before buyers jump on the buy to let bandwagon. Here are just a few:

Rental yields

Getting the best return on the property you invest in will be key as a buy to let landlord, and some areas of the country offer better rental yields than others.

Recent research from HSBC has found that rental yields are currently highest in the seaside towns of Southampton, Blackpool and Hull, where landlords can expect returns of almost 8%.

The top ten was completed by Manchester (7.6%), Nottingham (7.55%), Coventry (7.13%), Slough (6.82%), Oxford (6,74%), Liverpool (6.57%) and Portsmouth (6.55%).

Finance

Buy to let mortgages typically have low loan to value (LTV) ratios, meaning that you will need to find a deposit of as much as 40% to secure one.

There are also a number of other financial considerations to take into account when becoming a buy to let landlord, including funds to maintain the upkeep of a property, taking out landlord insurance, and the money needed to ensure your property meets the health, safety and legal requirements for renting.

Fluctuations in the market

The buy to let market will fluctuate, just like any other market, and it’s important to have a contingency plan in place for when the rental market is not performing as expected.

As an example you could create an emergency fund that you could draw on to cover any voids in your rental periods, so that you can continue to meet your mortgage payments.

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