There has never been a better time for investors to take full advantage of the resurgent and profitable Buy-to-Let property market.
And to help novice investors with their first step on the rung of the property ladder, leading lettings specialist, Belvoir Andover has produced its own “ABC‟ on the language of Buy-to-Let, with tips and advice on how to get started.
The current market remains buoyant, helped by George Osborne's April budget announcing wide scale changes to Stamp Duty Land Tax and the abolition of the 5% tax rate for multiple property purchases over £1m.
Independent financial research by Datamonitor indicates that Buy-to-Let mortgages will flourish more than any mortgage in the next three to four years.
To help new investors make the right decisions about their property purchase, Belvoir offers free, initial advice and guidance to anyone wanting to understand more about what and where to buy in their area, the risks and rewards of Buy-to-Let and the “mechanics‟ of property letting, such as referencing tenants, letting the property legally, on-going maintenance and protection of the property.
The four key stages for any investor are:
• Buying the investment property
• Preparing the property to let legally and for maximum rent
• Letting the property
• Cashing in on the investment, by selling or taking income
“A knowledgeable Buy-to-Let investor is more likely to be successful financially,” said Greg Greatbatch the co-owner of Belvoir Andover. “In line with other types of investment such as cash, bonds and share ventures, people interested in Buy-to-Let are generally a lot more savvy now than they were ten years ago. But the market has changed and investors need to understand fully what they are entering into and what they can expect to get out of it.”
To that end Belvoir Andover has compiled the following A-Z glossary to help future Buy-to-Let investors understand the key phrases and issues they need to be well briefed in.
Assured Shorthold Tenancy Agreement – A contract between the landlord and the tenant which provides limited security of tenure to the tenant and an absolute right for the owner to take possession.
Below Market Value – In theory this is buying a property at a price lower than it would sell on the open market. In reality a property is worth what someone can afford to pay for it at the time of sale.
Capital Growth – The rate at which the value of a property increases over a period of time. (According to Nationwide this is around 3 per cent net of inflation annually.)
Deposit – A sum of money paid by the purchaser towards property purchase. Currently averaging at around 25% for new buy-to-let mortgages (Council of Mortgage Lending).
Equity – The current market value of the property less outstanding mortgage.
Fire Safety – An essential consideration for any Buy- to-Let landlord. Definitive guidance on a landlord‟s responsibilities is provided by the Local Government body, LACORS (firstname.lastname@example.org).
Gearing – Describes overall equity levels within a property portfolio and indicates the debt level against its value. If gearing is high there is very little equity in the overall portfolio. If gearing is more than 75% a Buy-to-Let investor may find it difficult to re-mortgage.
Housing Act – Lays out current legislation and standards for housing conditions and the assessment of hazards.
Inventories – Carried out at the start and end of a tenancy, they not only list all fixtures, fittings and furnishings, but also record (photographically) the condition - and any subsequent damage to - each item. Important in disputes.
Joint Application – Proposal for shared ownership of a property by two or more people who subsequently take joint responsibility for repayment.
KFI (Key Fact Illustration) – Explains all terms, conditions and features of the mortgage - cost of the mortgage, monthly payments amounts, interest rates, penalties etc.
Licenced House in Multiple Occupation (HMO) – Landlords with properties let to five tenants or more, who are unrelated and not from the same direct family, and who share facilities such as toilet bathroom and kitchen need to check with their local authority about an HMO licence, since there is a variance in the definition of an HMO by different authorities.
Monthly Repayment – Set money paid each month to the lender for the outstanding loan balance.
Net Rental Yield – This is a post-purchase calculation of the total rent received minus the expenses the property incurs, expressed as a percentage of the property‟s value.
Outgoings – Current outstanding debts such as mortgage, insurance, maintenance fees etc.
PAT Safety Testing – The Electrical Equipment (Safety) Regulations 1994 requires that all mains electrical equipment (cookers, washing machines, kettles etc.) supplied in rented accommodation must be safe. Landlords should have all equipment checked at the start and end of each let and obtain and retain test reports.
Qualified Mortgage Broker – Qualified to provide expert advice on the mortgage products available to a landlord. Some are independent whilst some are tied to a financial institution.
Rent arrears – Payments received after the date due or after the services have been provided.
Stamp Duty Land Tax – Payable when land/property is purchased for more than a set price.
Tenancy deposit schemes – Since 2007 all deposits taken by a landlord must be safeguarded by one of three Government approved schemes. Landlords are free to choose which one they use.
Utility bills – Landlords must provide the essential services of gas, electricity and water, but tenants are responsible for the fuel and water they use. These utility bills can be paid by the tenant, or the cost included in the rent. Care must be taken by landlords not to be left with unpaid bills.
Voids – Any time during which a property is not let out to tenants and not producing rental income.
Wealth management – A service offered by a qualified financial advisor that helps landlords look after all their personal finances, including existing income streams, assets, insurances and finances related to your property portfolio and overall tax implications.
X-Ray Examination – When a landlord assesses all operating costs before making a decision.
Yield – Yield is the rate of return on your Buy-to-Let investment and is calculated by taking the gross or net income and dividing it by the value of the property.
Zero mortgage balance – Investors looking to maximise income should aim to fully repay the mortgage as soon as possible to achieve maximum returns.
Having predicted growth in the market throughout 2011 and into 2012, Belvoir is expecting a major influx in landlords over coming months and looks forward to preparing them for long term investment and reward.
“Buy-to-Let is and always has been, a highly profitable market for well organised, well informed landlords. We predict that in this next period of growth, responsible lending, borrowing and property management will combine to make it one of the safest and most viable investment options in the UK today,” added Greg.