5 buy-to-let-investment tips

The buy-to-let boom hit new heights in March as landlords took out a total of 45,000 home loans worth a total of £7.1bn.

UKpropertyThe 88% increase in BTL borrowing when compared with February is put down to property investors rushing to beat the rise in stamp duty on second homes that came into force on 1 April.

But it is not too late to profit from investment property – as long as buyers take into account the following five factors.

1 Be aware of tax implications

In addition to the 3% rise in stamp duty on second home purchases, the run up to 2020 will see the phased introduction of a number of tax reforms that threaten to bite into the profits of many landlords.

From next year, for example, cuts to mortgage interest relief will double the tax paid annually by landlords in the higher rate tax bracket. Not only that, changes to mortgage interest tax relief will push more landlords into upper tax brackets.
Make sure you know not just what your tax situation is now, but how it will change over the next few years and whether this will render a given investment unprofitable.

2 Maximise your deposit

While a 20% deposit on a buy-to-let investment is the minimum most mortgage lenders will allow, anyone raising a higher amount will benefit from more accessible mortgages, a smaller chunk of interest-accruing debt, better rates and lower mortgage repayments.

3 Factor fluctuating returns into your financial calculations

With a well-chosen property and a favourable market, buy-to-let can definitely be profitable. But this does not mean there are never any fluctuations in those profits.

There is an ever-present risk of the property standing empty if a tenant leaves, which means a landlord will be left with outgoings such as mortgage repayments and no rental income.

Profits can also be hit by the expense of repairs and maintenance. These times do not have to threaten the viability of the investment, but you should be financially prepared for such events whenever they arrive.

4 How much time can you afford?

It is important to think about how much of a hands-on landlord you want to be. Using a letting agent or management company will make your investment very hands-off and easier to manage, but they need to make a profit too and this means that a cut of your returns will go to them in fees.

Managing the property yourself, on the other hand, means that all your net profits are your own but can make the investment much more time-consuming. Depending on circumstances, this can easily make your investment more akin to an extra job than a way of growing your savings.

5 Consider the size of your investment

If you are making your first buy-to-let property investment, it is probably best to start with a smaller investment. A more modest property, such as a studio, one- or two-bedroom flat, will be better for first-time investors on multiple levels. You do not have to sink so much money into your first purchase, repair needs and management demands are likely to be lower and returns still have a lot of potential to be proportionally strong.