Aldermore is one of the new breed of banks that is shaking up the mortgage market, especially in the buy-to-let space. The lender, explains what you need to know if you are new to property investment and offers some tips on how existing landlords can increase their property portfolio
With the buy-to-let market set to treble by 2032, according to figures from the Department for Communities and Local Government and the Intermediary Mortgage Lenders Association, it seems that the opportunity for both experienced landlords and those thinking about investing in property and entering the world of buy-to-let is a truly blossoming one.
The changing British housing landscape
The British housing market has changed substantially over the last decade and some say it will never be the same again but what does this mean to the average person on the street?
An ageing population, a significant cultural change within a younger generation who have accepted they may never be able to afford a home of their own and an ever-restrictive first-time buyer market. Coupled with sluggish new build transactions and the declining availability of social housing, the indications are that rental accommodation and the buy-to-let landscape could be more prominent than ever before.
Whilst clearly a growth area, the UK buy-to-let sector is still currently substantially behind in its popularity compared to the rest of Europe. In Germany, for example, the number of households in rented accommodation is approximately 47 per cent in comparison to the UK market which is currently only 18 per cent.
With house builders not willing or not able to build quickly, and indeed not seeing the commercial value in building smaller houses, more flexible employment contracts (e.g. zero hours) and one person households set to represent two-thirds of future household increases, the buy-to-let sector has what can only be seen as a growing opportunity for many.
This rising confidence in the buy-to-let market is supported by a recent survey conducted by the Office of National Statistics. Its findings suggest that 42 per cent of respondents (20,000 interviewed) considered property investment and buy-to-let as the ‘secret’ to creating a retirement fund which will provide a comfortable income into later life.
New opportunities
Confidence amongst landlords is growing with the propensity to purchase buy-to-let in the immediate future increasing substantially.
Almost one in five (18 per cent) of landlords are expecting to buy new property soon compared with 15 per cent in Q4 of 2014, according to buy-to-let lender Paragon. But more interestingly amongst those landlords looking to purchase new property, 22 per cent are looking to buy more unusual rental properties including multi-unit blocks (flats and bedsits) and Houses in Multiple Occupation (HMO – shared housing and student accommodation).
Reasons for renting are also changing depending upon the age of the renters, with many citing raising the deposit as the main hurdle for them not being able to undertake their own mortgage. So with increasing rental costs and mortgage affordability seen as a barrier many individuals are now confined to the rental sector with very little hope of ever leaving it.
The counter balance is that the younger generation now see rental accommodation as being able to provide them with greater flexibility in their life and career choices, and many are not quite so fixated on owning property, reaffirming the shifting landscape of the British housing market.
Supporting new and existing landlords and property investors
All of this is great news if you are considering becoming a landlord, or you already have some properties you rent out and are contemplating growing your property portfolio further. If that is the case then there are plenty of opportunities that Aldermore can help you with.
New to buy-to-let?
You’ve been thinking about it for a while and now the perfect rental property has come onto the market and you want to buy it. Great!
Now is the time to really understand the options open to you and the different types of buy-to-let mortgage on the market.
There are a few things to consider before placing an offer:
- There are different types of buy-to-let mortgages available and you’ll need to decide which type of mortgage suits you and your circumstances best.
- Buy-to-let mortgages tend to have higher interest rates than regular mortgages, and can demand larger deposits.
- Some lenders will accept deposits of 20 per cent, but you will be in a stronger position if you can put up at least 25 per cent of the property value.
- Buy-to-let fees are likely to be higher than traditional mortgage fees.
- You should also consider how the housing market could change over the next ten years.
Your application could also be affected by certain criteria, such as:
- How much you earn.
- Whether you already own your own home.
- What you are likely to receive in rental income.
- Your age – borrowers who will be over 70 by the time the loan is due to end could find it difficult to get a buy-to-let mortgage with some lenders but with Aldermore we will consider your application if the mortgage term finishes by the age of 85.
Being a landlord
Now that you understand the mortgages available, the next stage is to familiarise yourself with what it means to be a landlord.
It would be worth considering at this stage what type of landlord you want to be.
Are you prepared to be a hands-on landlord? Are you willing to find the right tenants for your property, undertake references, collect the rent each month, and are you ready to take calls from your tenant on a Sunday afternoon asking for the boiler to be fixed?
Or are you prepared to be more hands off and use a letting/property management agency to take the responsibility of finding tenants, collecting and chasing the rent each month and dealing with any issues that arise which the tenant may report. It’s worth remembering that, regardless of which route you take, the property and the tenant will always be your responsibility.
Other items to consider when becoming a landlord are:
- Capital growth – always look for the long-term profit and investment opportunity with a property
- If you decide that you are not going to manage the property yourself then find a good management agent – seek out recommendations.
- See the property as collateral; it’s an asset, try to detach yourself emotionally from the property.
- When doing your calculations on a property purchase, ensure that the property ‘can pay for itself’ and that you know the percentage yield you wish to obtain.
- Be prepared for times when the property is empty and no rental income is being received – how will you cover the mortgage payment?
- If you can only achieve a certain level of rental income for the property, it is unwise to assume things will get better if you ‘just support it for a while’ – if you are paying out more than you are getting for the property then it’s unsustainable.
- Know your market – research the location in which you intend to buy. Know who your tenants are, it’s really important, and also what type of tenant you want to attract.
- Avoid buying in other parts of the country; unless you know the area well or have some connection with it; maybe you used to live there or you have contacts that do. Don’t just pick a location because it’s cheap or the next big thing.
- Join a landlords association or forum. It’s really important to get support and they can be a great source of tips and advice.
- Make friends with your local authority and understand the rules and regulations for letting property in your area – they differ for every local authority so it is wise to understand them clearly and to avoid issues in the future.
- Remember to register with the Tenancy Deposit Scheme.
- Ensure you have legal tenancy agreements.
Do you already own a rental property?
You’ve already ventured into the world of rental property and you want to do more, here’s what Aldermore can do to help you build you property portfolio.
- Remortgage an existing property to release cash for your next investment.
- We don’t use credit scoring. All applications are reviewed and considered individually by our team of experienced underwriters.
- We have an expert team of mortgage advisors providing a personal service, with dedicated point of contact throughout the buying process.
- There is no limit on portfolio size – if this your second, twenty second, or hundred and twenty second property, we don’t mind, we can help.
- There is no minimum income for experienced landlords (but you need to be earning £25,000 minimum for your first buy-to-let mortgage).
- We fund any property type, from single family units, to more specialised HMOs and multi-units.
- We have mortgages available for up to 80 per cent of the property’s value.
- Mortgages are available up until age 85 at the end of the mortgage term.
- Speak to us about remortgaging your existing portfolio with fixed rate mortgages – we can help you protect your outgoings in the future.
A growing lender
Aldermore is one of the UKs fastest growing mortgage lenders in the UK.
Our mortgages are designed with landlords and property investors in mind as we know and understand the challenges landlords and investors face every day. We not only help with funding properties but we also provide valuable information about being a landlord on our website. You can find a host of information by visiting aldermore.co.uk/buy-to-let.
You can also speak to our dedicated mortgage advisors team between 8am and 8pm. Our underwriters review every application individually and by hand, we don’t use credit scoring systems and review the application and its supporting documents with a common sense approach.
If it’s your first property or you have a large portfolio, whether buy-to-let is your main source of income or a sideline to boost your pension, you need to remortgage or fund a House in Multiple Occupancy or multi-unit property, then
we can help.
Contact our team today by calling 0333 321 1001 or visit our website to find out more about our mortgage offerings.
aldermore.co.uk/buy-to-let
