The Advantages and Disadvantages of a Buy to Let Mortgage

There are some things to consider before committing to a Buy to Let mortgage and because we like to make your life easier, we have highlighted a few of the most common advantages and disadvantages of owning property as an investment here.  Hopefully by taking these pros and cons into consideration it should give you the foundations to make any future decisions, whether this be as a first-time landlord or an experienced portfolio owner.

ADVANTAGES of a Buy-to-Let mortgage

Thousands of investors see property as a viable means of increasing their returns.  As with any investment there are the good and the bad to take into consider however here are a few of the positive aspects of Buy to Let Ownership.

• Capital gain: Although the value of your property can go down as well as up, historically property in the long term has served investors well with an increase in value.
• Generate an Income: Hopefully the property will service you well during the ownership with the rent providing you and additional income.  Do ensure however you factor in any ongoing costs of the property and check the rental yield for the rate of return.
• Demand:  The rental market is currently very strong with demand at a high.  With lack of affordable housing and stricter mortgage underwriting criteria people look to rent as an alternative.
• Spread of investments: It’s widely advised not to have all of your eggs in one basket and when considering where to invest your money property can give an additional spread of risk.
• Increase in returns – With historically low interest rates it has become frustrating for savers and for some they have turned to property as an alternative to look to provide a better return on their capital.
• Flexibility – Due to recent tax changes the rise of limited company buy to lets has seen a shift in the type of ownership.  With lenders also now offering many more products for limited company buy to let mortgages, when combined with the options for personal ownership it has provided much greater flexibility in how to build your portfolio.

DISADVANTAGES of a Buy- to-Let mortgage

Owning a Buy to Let Property has the potential to offer a great return and thousands of people opt to invest in property in the UK.  However, as with most things in life, owning a Buy to Let Property can have its negative points.  We focus on a few of these below.

• Increased Stamp duty: For many investing in a Buy to Let, the property in question will be a second property or even more if part of a portfolio.  In April 2016 the Government introduced a 3% surcharge for any additional property purchase
• Rental voids: Whilst the plan is to have a tenant in the property during its ownership, it is likely that any landlord will experience a period of rental void.  Ensure you factor any possible periods of this into your budget.
• Non-payment of rent: Having a rental void due to non-occupancy is a budgeting cost many will make allowances for however, arguably more difficult if the ability to deal with a problematic tenant. This can also be compounded with any legal costs that may be incurred.
• Drop in property value: Yes, sadly for some property investors they thought the only way was up, but in reality, the value of any property can also go down and may even fall below what you originally purchased it for.
• Legislation:  Landlords have a legal duty and legislation can be a mine field to many being difficult to stay on top of.  Ignorance however, is no excuse and hefty fines can be imposed if you do not fulfil your legal responsibilities.
• Interest rate rises:  Whilst this will affect those with buy to let mortgages more, as you will no doubt be aware, rates can go up as well as down.  Yes, you can fix your interest rate for a given period of time however, during the lifetime of your mortgage you may experience an increase to your payment.  Just because your mortgage payment has gone up does not enable you to simply increase the rent.
• Income tax:  Rules around taxation have changed and as such it has made buy to lets more complex, and for some much less tax efficient.  This is especially the case for higher rate tax payers.  Make sure you check your situation and options with tax specialist or accountant before taking the plunge.

We are here to answer any other questions you may have, get in touch.