The UK’s buy-to-let (BTL) industry is an important driver of investment into bricks and mortar. The sector of the property market has been contently booming as the demand for tenants continues to rise, catching the eye of many property investors. There are currently around 2.7 million people who are UK BTL landlords and with demand for rental properties rising, there will likely be more people considering this option moving forward.
What is a BTL?
A buy to let investment is when either an individual or a company purchase residential investments with the intention to ‘let’ them out to people, the people they let to are called tenants. Renting can be a way for adults to move away from home and gain independence, without having to fork out thousands for a deposit for a house. With UK property prices rising, this can be very difficult, particularly for first-time buyers.
BTL properties are often flats or house shares generally found close to city centres, where property prices are high but rent is often affordable and in walking distance to a place of work. Recent data from the office of national statistics shows that the private rental sector is still highly favoured by young professionals. In fact, 67.8% of the sector in 2017 consisted of renters aged between 16 -24 and was closely followed by those aged between 25 – 34 who took up 43.7% of the market.
There are many reasons why people rent, and equally there are many reasons why people become landlords. For those looking to take on these property investments, it’s important to ask yourself if being a landlord is for you, and whether you can deliver the type of property that tenants are looking for. Let’s look at some of the advantages of buy-to-let properties.
Source: Office of National Statistics
The advantages of buy to let
There are two main advantages for those who own a BTL property.
1) Regular Income
By letting out their property, landlords receive rental payments from their tenants. This is typically paid on a month-by-month basis. It allows landlords to pay any existing debt on the residential property. The rental payments can also be used to also fund the renovation or refurbishment of the property. On top of this, landlords also generally factor in a profit to make the endeavour worthwhile.
Houses of multiple occupancy (HMO) are a form of BTL property that is most popular amongst young professionals, as they can decrease the monthly rent cost per tenant, and there is less risk for the household if one person were to move out of the property. For landlords, however, the rental yield for these types of properties can be up to three times higher than renting a whole property on one agreement. But these BTL properties hold their own pros and cons for landlords, as they have the potential to require additional long-term maintenance costs.
2) Capital growth.
Owning a BTL property means the landlord’s asset will potentially rise in value over the long-term in line with national house price increases. If the landlord decides to sell the property, the market value of the house could be a lot higher than when it was first purchased, which would generate a large capital growth.
Between 2001 and 2020, average UK property prices have tripled from £81,628 to £224,337 – a gain of 175%. This is impressive capital growth when compared to the performances of other assets. If a landlord had bought a buy to let property in 2001 and sold in 2020, they would have made a profit on the sale while also receiving regular rental payments, and paying off existing debt during that period.
Source: The Times
The Future of Buy to Let
The pandemic has changed what tenants want from a rental home. The ability to work from home means that some tenants are considering less expensive properties outside of urban areas which afford them more space, both indoors and outdoors.
Landlords are adapting to these challenges posed by COVID-19. As lockdown restrictions are lifting, commentators are confident demand for rental properties will continue to increase. There are also new property investment hotspots that prospective landlords need to be aware of.
Growing demand for BTL properties located just outside cities in recent years is a great example of this. They are popular locations as tenants can commute to London and other major cities when required, but benefit from cheaper rent and cost of living. MFS recently identified the top five commuter towns that buy to let landlords investing in property should have on their radar in 2021.
You can access the blog here.
With house prices set to rise in the coming months, BTL properties remain a popular option for those considering different investment assets. And with the Stamp Duty Land Tax holiday extended until the end of June, those looking for a new BTL investment opportunity should act quickly.
The success of such a purchase depends on the buyer engaging with a lender experienced in the deployment of buy to let loans. Failing this, there is a chance of a deal collapsing due to delays and unnecessary complications.
Buy to Let Loan
Alternative finance can offer flexible bridging loans that can ensure funds can be with you in a matter of days. A fast completion is something that, initially, BTL mortgages can’t provide. A bridge-to-let loan can help finance a property investment opportunity with a swift and simple process.
If you or your clients are considering this, get in touch today. Our team can provide more information about what bridging finance options are available with our buy to let product. Whether you’re in need of a standard buy to let loan or you’re looking for finance to help with a buy to let refurbishment project, we’ve got you covered.