YOUhome Blog

Buy-to-let residential property investors are currently responding positively to the market, motivated by a combination of factors that are signalling a general confidence. We highlight six reasons why you should consider buy-to-let now.

Firstly landlords can see clearer financial rewards from committing to a buy-to-let investment. Interest rates and fees are traditionally higher on buy-to-let (BTL) mortgages, because financial institutions view BTL mortgages as a greater risk than residential owner-occupier mortgages. However, currently investors should be benefiting from lower rates if they are on a lender's standard variable rate (SVR). Several buy-to-let deals do not have typical SVRs but they have a revert rate that tracks the bank rate. By focusing on investing for rental returns rather than capital growth, the numbers are making sense.

A recent ARLA (Association Residential Letting Agents) quarterly survey showed that on average 90% of landlords said that they would hold on to their investments even if house prices fell, 62% said that the average life expectancy of their property investments was ten years or more and 58% said that they intended to acquire further buy-to-let investments in the near term. The overall average life of their property investments was 16 years. Their strategy is valuable learning.

Secondly buy-to-let investors can be more confident today that the rights of tenants and landlords are fairly equally balanced thanks to Assured Shorthold Tenancy legislation. In summary this means less security of tenure for tenants and the power to evict problem tenants by the landlord.

Thirdly, government focus is benefiting the sector. The 2011 budget identified buy-to let as one way of solving Britain's housing shortage thus stimulating investment into residential property. Stamp duty on the cost of buying and building large portfolios of property has discouraged investment in recent years. However the budget now proposes that the stamp duty on the purchase of more than one property will be calculated by the average value of the properties and not the bulk value. This means that if an investor buys 100 properties worth an average of £200,000 they will pay stamp duty at 1%, equal to £200,000 rather than at 5% equal to £1m.

Fourthly, looking to the future, the 2012 budget could also make it easier for residential investors to become a Real Estate Investment Trust (REIT), which will mean they will not pay capital gains tax. The chancellor is proposing to scrap the 2% entry charge that landlords must pay to become a REITs and he may scrap the rule restricting REITs to stock market listed companies alone. This will allow pension funds to turn property portfolios into REITs and potentially allow smaller buy-to-let landlords to benefit from tax breaks on capital gains.

Further, there are tax advantages for investors. Rental income is considered in the same way as salary, therefore tax is generally assessed at 22% or 40%. However, landlords can deduct costs from the taxable portion of their rental income, and these costs can include the interest portion of their BTL mortgage repayments as well as maintenance costs on the property. These income tax incentives have made BTL investments more popular over the last few years.

Finally, the areas of Bournemouth, Poole and Christchurch specifically afford landlords an opportunity to obtain the maximum benefit from their rental investments. Local knowledgeable agents will have valuable insights into this market whether there is a demand for say, two-bedroom flats or four bedroom houses; for properties close to schools or transport links; for quiet properties with secluded gardens. Your agent will know the standard of decoration, furnishing, fixtures and fittings required by the market.

Currently YOUhome® is seeing high demand for good quality family housing close to local schools. Also quieter areas such as Lower Parkstone, Boscombe East and Southbourne are in demand. YOUhome® has many applicants waiting for one bedroom flats in the town centre. Seasonal trends see an influx of foreign language students into the area over the summer months, and these students are looking for furnished properties. There is always demand from well-covenanted tenants who are attractive to the landlord: they will pay their rent on time, leave the property on time and leave it in a well-cared for condition – music to the ears of all landlords.

All the arguments are there to consider residential property investment now if you have not done so already. Contact YOUhome® if you would like to discuss this opportunity further or if you are already a property investor looking to increment your portfolio.