Five ways to make buy-to-let work

Daniel Owen-Parr, head of professional sector and auction at Together, shares his tips on how to navigate the changing buy-to-let landscape. 1. Do your homework With the government’s plans for the buy-to-let sector, doing your homework is critical. Mortgage interest tax relief is being withdrawn in stages, to be replaced by a 20% tax credit. Also, landlords have had to pay an extra 3% stamp duty on property purchases. You need to be able to adapt to the changes and ensure you’re getting financial advice on your own tax position and the impact the changes will have. 2. Work out rental yields Understanding the potential profitability will help you identify the property types and locations to best suit your budget. Before you start looking, sit down with a pen and paper and think about your budget and the rent you are likely to get. Also, don’t forget factors such as maintenance costs. 3. Location is key The current desirable areas for renters are usually well-known, but an up-and-coming area could be a great opportunity, so you might want do a bit of background research. Think about whether a town is in a commuter belt, or is near well-regarded schools or good hospitals. 4. Choose the right property You will need to research the local market and get to know which areas are popular for different types of renters, such as families or students. For example, in town centres it may be easier to rent out a one-bedroom flat, whereas a three-bedroom terrace is likely to work better in a family neighbourhood. Also, think about the tenants you are looking to target. If they are professionals, for example, they may be looking for a modern, stylish home, while families might want a bit more space. 5. Securing finance Unless you are a cash buyer, you will need a buy-to-let mortgage. There are a number of specialist lenders, such as Together, that will consider buy-to-let mortgages on properties such as those in need of renovation, which the mainstream banks may not. It will also deal with a broader range of applications; from those with complex income streams and retired people, to those with a less-than-perfect credit rating, to give just a few examples. Case study: Portfolio landlord Victor Singh Scottish landlord Victor Singh, 53, has built up a portfolio of nearly 60 properties, which he began by snapping up cheaper houses at auction before renovating them and letting them to tenants within weeks. The landlord followed his entrepreneurial father who moved from India in the 1960s, selling goods out of a suitcase before successfully turning his hand to property, buying up buy-to-let homes and factories in Glasgow. Singh initially joined the family business working for his father, but decided to go it alone 20 years ago, and employs his daughter Brooke, who manages the lettings side from the company’s newly opened offices in the centre of Dumfries. Singh said: “I started off having just enough money to get the ball rolling on my own and it grew from there. It would be a four-week turnaround, no matter what the state of the property, and we worked like that day and night for 12 years.” Like thousands of other landlords up and down the UK, he has raised money through remortgaging his current portfolio, using the cash to buy up more houses, flats, commercial property and land.  In the past, he’d always secured funding through high street lenders to buy properties around Dumfries and Carlisle, Cumbria. However, more stringent underwriting rules have meant bank finance has been harder to come by in recent years. Singh said: “It is obviously harder to obtain finance now, and that’s one of the key issues for people starting up as professional landlords. “We had a good bit of business with the mainstream lenders over the years but they lost their appetite for lending after the crash of 2008 and, since then, funding just dried up.” After being unable to release £2.7m through a remortgage to invest in more properties, Singh started doing his own research online and contacted Together. The specialist lender looked closely at his previous experience as a landlord. Its regional development director for Scotland, Steve Clark, visited Singh’s new offices and agreed to refinance the portfolio. Experts have predicted that a more professional buy-to-let sector will emerge as “dinner party” landlords – who perhaps own a single property – quit the market. Singh said: “There are a lot of hurdles and it is not going to be as easy as it has in the past, but I’m keeping open minded about the future. There will be more properties coming onto the market.” and more options available for professional portfolio landlords.” Investors are filling gap with new funding sources, says mtf Property investors are opting to raise alternative finance after struggling to secure buy-to-let mortgages, according to the latest Property Investor Survey conducted by short-term finance lender mtf. Some 57% of 84 property investors surveyed struggled to secure a BTL mortgage in the past 12 months, with 62% citing affordability criteria as the primary barrier to mainstream funding, followed by age restrictions (20%) and insufficient deposit capital (18%). Yet 43% of those surveyed filled the funding gap with other sources of liquidity. Of those investors who managed to secure alternative finance, 40% opted for secured loans and 30% raised bridging finance. When asked what mainstream BTL lenders could do to improve their accessibility, 57% of respondents said a more flexible approach was key. Some 29% said a reduction of processing times would be the best improvement, while 14% said offering better rates would help greatly. Tomer Aboody, director of mtf, which has been in operation since 2008, said: “The results from our Q1 Property Investor Survey reflect the impact of stricter affordability and stress testing from lenders on professional property investors’ ability to obtain mainstream funding. “However, specialist lenders are stepping in to meet the needs of borrowers and fill the liquidity gap.” Pic credit © Dinendra Haria/Rex/Shutterstock