Is Now The Right Time To Buy To Let?

The housing market has undoubtedly been hit hard following the recession of the last 3 years. The Royal Institution of Chartered Surveyors (RICS) recently released its forecast predictions for 2011. They reported that house prices in Britain will fall by at least 2% by the third quarter. It's a dismal time for first time buyers and homeowners alike, but what about those who have invested in Buy to Let properties? Could the fall in house prices actually fuel the already expanding rental market?

At a time when house prices have already tumbled, and with the RICS UK Housing Market Forecast predicting further drops, this could on the face of it seem like an odd time to advocate investing your money in property. However, the golden rule of investment applies - it always pays to consider the longer term.

The Buy to Let (BTL) market isn't for everyone. You need to think about it carefully as a business proposition. There will always be a sizeable initial outlay (specialist BTL mortgages usually need a deposit of at least 25%, and other costs such as arrangement fees are normally higher too), and you need to be prepared for monthly outgoings too - not just mortgage payments, but letting agent fees, landlord insurance and so on.

For those who are in a financially sound situation though who feel they can meet the expenses and various requirements, property investment can prove to be extremely lucrative. The demand for homes to rent is at an all time high as lenders tighten their restrictions over mortgage applications. You certainly won't be short of interested tenants!

The most important thing to calculate when considering entering the Buy to let market is the projected rental yield. You must weigh this up against your totalling initial outlay, your predicted ongoing expenditure and how much you intend to change your tenants. Such calculations will enable you to decipher if the investment will be worthwhile in the long term.

As a basic calculation, you can work this out by subtracting your total annual costs (mortgage repayments, letting agent fees, landlord insurance costs and any maintenance or repair costs) from your total projected rental income for the year (remember to deduct around five per cent to account for periods that the property might be untenanted), then dividing by the total initial costs (the deposit, mortgage, surveyor and solicitors' fees, and decoration or furnishing costs).

As this calculation provides a sound estimate, it also gives you some flexibility to change some of your values in order to account for variations. For example, fluctuations in house prices, lender terms and an increase or decrease in how much you intend to charge in rent. The various projected outcomes will allow you to determine if your investment will be beneficial no matter what the market conditions.

The Buy to Let lending market is extremely specialised and therefore you are unlikely to find the best rates and deals on the high street, through either banks or building societies. Therefore, don't be afraid to approach a mortgage broker, contrary to popular belief, they are there to help you!

Look to find a broker who is independent and then you are guaranteed impartial advice and the best value for money. Obtaining financial advice is also imperative if this is your first venture into Buy to Let and renting a second property. Entering the market is a long term commitment and is therefore a decision that should not be taken lightly.

Of course, all long term investments come with levels of risk. The point is to weigh up these risks against the potential end profit of the investment. With house prices so low and if you are financially comfortable, then buy to let could be the perfect opportunity to create a significant extra income.


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This article was written by financial expert Timothy Frodsham, who writes for Just Commercial Mortgages who specialise in providing information on buy-to-let, commercial mortgages, commercial property finance and offer a service to find the very best commercial mortgage rates available in the market.