Buy-to-let is a popular route for people who are keen to invest in property and turn it into a reliable source of income. A Buy-to-let mortgage means that a property has been purchased with the sole intention of being rented out to tenants.
The majority of these mortgages are interest-only, meaning that the individual is not required to pay off the full sum of the mortgage, and instead only has to initially pay back the interest on the loan. However, they must be willing to either remortgage, sell the house or pay off the loan in full at the end of the mortgage period.
The UK property market has experienced a turbulent few years, and this has caused some people to question whether purchasing a Buy-to-let house is ‘still worth it’. To answer this question, we’ve explained the pros and cons of this mortgage type in the blog below.
Advantages of Buy-to-let
In the UK, there is not technically a limit to the amount of Buy-to-let mortgages someone can have, which means that you can grow a property portfolio through this route. Just keep in mind that you may need to use more than one different lender, because some organisations have a limit on the amount of money they will lend one person, simply to minimise their risk.
Buy-to-let properties can often represent a worthwhile investment in major cities, because there tends to be more people looking to rent in these busy urban areas. In theory (as long as the market is not experiencing a major slump) there should always be people looking to rent in these locations.
Another advantage of Buy-to-let is that it doesn’t ‘back you into a corner’ – in other words, you can change your buy-to-let mortgage to a residential mortgage if your situation changes, and you wish to do so. While this requires you to meet the lender’s financial requirements once again, it means that you can keep ownership of your house is you wish, and even live there if you are particularly fond of it.
Disadvantages of Buy-to-let
A typical lender in the UK will usually require a larger deposit on Buy-to-let mortgages, compared to other types. In general, you can expect a lender to demand a 25% deposit. If you aren’t able to raise this much cash, then Buy-to-let becomes a slightly less achievable option for any major lender.
When you opt for a Buy-to-let property, you will encounter all the headaches that come with being a landlord. This includes your tenants not paying on time; fixing objects which have been broken by your tenants; or dealing with any issues caused by your tenants (such as them irritating the neighbours). There are other challenges besides this.
Lots of lenders create a condition when granting you a Buy-to-let mortgage that you cannot live in the property yourself. This means that the house cannot be used as a ‘fall back option’ if you fall onto hard times.
Is Buy-to-let still worth it in 2023?
Many people in the UK are questioning whether Buy-to-let is still worth it in 2023 because of changes to tax laws, as well as rising interest rates. Stamp duty surcharges have reached 3%, meaning that anyone who purchases a second home (such as a Buy-to-let property) has to pay an extra 3% in tax on top of regular stamp duty rates.
Rising interest rates in 2023 means that rented accommodation is less affordable for potential tenants. For example, some first time buyers are waiting a few more years before moving out, which means that there are less people looking for rented accommodation. You may find it challenging to find a suitable tenant for your property as a result.
With all this being said, property remains an advisable thing to invest in. Interest rate levels will not remain high forever, and while a 3% stamp duty surcharge is a source of frustration, future governments may change this. Furthermore, this surcharge is only problematic if you already own one property in addition to your buy-to-let – which may not necessarily be the case.
Should I use a letting agent to manage my Buy-to-let property?
Finding a letting agent to manage your Buy-to-let property can take away lots of the stress of owning a property. Many of your headaches will come from managing the issues that come from having tenants – such as damage to your property, late payments, and more. While some of these things might still fall under your umbrella, letting agents can offer you peace of mind and a safe pair of hands.
You should seek a quotation from different letting agents to manage your property, and decide if the reduction in profit is worthwhile.
If you own a flat but decide that you no longer want to, then We Buy Any Home can help you sell your flat fast. Contact us today.