The UK’s buy-to-let (BTL) market is an important driver of investment into bricks and mortar. This sector of the property market has been continuously booming as the demand for tenants continues to rise, bringing more traction to investors looking for a medium to long term investment. The number of landlords in the UK now sits above 2.65 million people and with demand for rental properties continuing to rise, the sector is an attractive option. But what is buy-to-let property? We are looking at the definition, types of buy-to-let properties and what is to be considered when investing in BTL.
What is buy-to-let property?
In terms of what does buy-to-let mean, it is the act of an individual or company purchasing a property with the intention to ‘let’ it out to tenants. Buying a property for first timers who are hoping to get onto the property ladder is a challenge due to the price entry barrier and high deposits. Meaning, we are very much a society of ‘generation rent’ whereby half of the millennials are very likely to rent into their forties. Many believe they’ll be drawing on a pension before they even consider buying.
Is a buy-to-let a residential property?
BTL properties are often flats or house shares, generally found close to city centres. This is where property prices are often very high but renting becomes an affordable living option for those looking to stay within walking distance to work. The May House Price Index from Rightmove shows the average asking price across the UK is currently £367,501 this month according to their research. This marked the fourth consecutive rise, putting prices £55,000 higher than pre-pandemic. During 2020, Statista found that tenants aged between 25-34 were the largest rental group within the UK. The range totalled 1.4 million private renters, despite the increase in the number of homeowners for every age band. Additional research from Statista found private renters, aged 65 and over, was the largest household tenure group in England in 2021, accounting for 6.9 million households.
What is the advantage of buy-to-let property?
Investors may ask themselves “what does buy-to-let mean for me?”. Well, there is plenty of opportunity within the market. There are many reasons why people rent. Equally, there are many reasons why people become landlords. For those looking to invest in property, it’s important to ask yourself if being a landlord is for you:
Can you deliver the type of property tenants are looking for?
Are you looking to rent a property closer to where you are, or from abroad?
Will you require someone to manage the property and tenants on your behalf, such as an estate agent – if so, have you considered the costs for this?
What does buy-to-let mean for your finances specifically? Let’s look at some of the advantages of buy-to-let properties. There are two main advantages for those who own a buy-to-let property.
What is buy-to-let property worth month to month?
Landlords typically receive rental payments monthly. This allows them to pay any existing debt on the residential property, such as contributing towards a mortgage.
The rental payments could also help fund any renovation or refurbishment the property needs – to repair damage such as wear-and-tear. On top of this, landlords also generally factor in a profit, to make the endeavour worthwhile.
What is buy-to-let property worth in the long term?
Owning a BTL property means the landlord’s asset will potentially rise in value over the long-term in line with national house price increases. If the landlord decides to sell the property, the market value of the house could be a lot higher than when initially purchased. Therefore, generating an increase in capital growth.
Over the last ten years or so, the average UK property prices has grown from £169,866 to £278,000 (July 2011 vs March 2022). That’s more than a 50% increase – an impressive capital growth. If a landlord had bought a buy-to-let property in 2011 and sold in 2022, they would have made a profit on the sale of the asset, on top of regular rental payments. This can provide landlords with the opportunity to pay off any existing debt on the asset.
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