Home > Buy To Let > Buy to Let Basics

Buy to Let Basics

By: J.A.J Aaronson - Updated: 24 Oct 2012 | comments*Discuss
 
Buy To Let Rental Property Arla Agent

Buying property with the intention of renting it out is, of course, an ancient practice. The landlord may well be, in fact, the second oldest profession. However, it is only recently that individuals have been in a position to take on this role themselves, rather than companies or professionals.

It has traditionally been the case that buying a house and then letting it out has been a purely commercial project, rather than something which enterprising individuals can take on. As a result, those who chose to go down this route have, in the past, been subject to heavy corporate taxation and loan terms designed for businesses. This has meant that the private rental sector in Britain has suffered massively - it lags considerably behind most other developed nations in this field. As well as reducing choice for those who wish to rent, this is damaging for the economy as a whole as it increases the strain felt as a result of fluctuating property prices.

In order to rectify this situation, the Association of Residential Lettings Agents (ARLA) devised the Buy to Let scheme. Under this new set of rules, individuals who buy property with a view to entering the rental market are no longer financially penalised through levels of taxation intended for businesses. Similarly, ARLA have persuaded mortgage lenders to revise their lending practices. This means that such individuals will no longer have to pay corporate interest rates on buy to let mortgages, but instead have access to the much lower private rates. Similarly, projected rental income can now be counted as a means of mortgage repayment. This means that individuals can now borrow considerably more to fund their buy to let purchases.

It is clear, therefore that we are entering a newly promising era for the buy to let market and, as a consequence, many more people have decided to pursue rental as a possible form of investment. In this new climate of positivity, it is easy to forget that any investment, particularly property, is a risk. It is vital to remember this if you are to be successful in the rental market.

Buying to rent should be seen as a long-term investment. Unless you have a particularly extraordinary stroke of luck you are unlikely to see decent returns until several months into your first tenancy, as a result of the numerous overheads which need to be covered. These include any work that needs to be carried out in order to make the property tenantable, as well as agents' fees and other associated costs. These can be considerable, and need to be spread across several months of rental. The average gross return on rental property in the UK is around 10%, although your net income will of course increase over time as you cover your initial expenses. In order to make this possible, your monthly rental price should probably be around 150% of your mortgage repayments.

One of the first, and most important considerations when embarking on a buy to let project, is your choice of agent. A good letting agent is vital, as they will be able to share valuable knowledge about the area, including the types of property on which you are likely to see the best returns, and reasonable guide prices. It is important to employ an agent who is accredited by ARLA. Under the guidelines set out by the Buy to Let scheme, mortgage lenders are likely to give you a loan only if you have taken this step.

As you can see, there are a good number of practical concerns to take into account when considering buy to let. However, if you are willing to abandon any dreams you may have of easy, quick money, you may well be in a position to take advantage of the highly favourable new terms available to prospective private landlords.

You might also like...
Share Your Story, Join the Discussion or Seek Advice..
Why not be the first to leave a comment for discussion, ask for advice or share your story...

If you'd like to ask a question one of our experts (workload permitting) or a helpful reader hopefully can help you... We also love comments and interesting stories

Title:
(never shown)
Firstname:
(never shown)
Surname:
(never shown)
Email:
(never shown)
Nickname:
(shown)
Comment:
Validate:
Enter word:
Latest Comments
  • GREENY483
    Re: How Much Tax do I Have to Pay?
    I earn £50k a year in full time employment, last year I also made an additional £800 through other work, do I need to fill in a…
    18 September 2018
  • Soldier93
    Re: How Much Tax do I Have to Pay?
    Can i have a quastion? From this days i paid my tax every month i paid 70 pound. Now my boss told my i need to pay every week…
    16 September 2018
  • MoneyExpertise
    Re: How Much Tax do I Have to Pay?
    Lora - Your Question:Hi, My contract with my employer is through a freelancing website. Does this mean that I'm "employed" and…
    13 September 2018
  • dbexit
    Re: Will I Be Entitled to Redundancy Pay and How Much?
    Big company (1) with a lot of places of work closed one of it. There was no redundancy as employees…
    12 September 2018
  • Lora
    Re: How Much Tax do I Have to Pay?
    Hi, My contract with my employer is through a freelancing website. Does this mean that I'm "employed" and not "self-employed"?…
    12 September 2018
  • James
    Re: How Much Tax do I Have to Pay?
    Hi, I have earned £15,000 in this current tax year and have paid £2100 tax as PAYE; I am now switching to self employed. Will…
    7 September 2018
  • MoneyExpertise
    Re: How Much Tax do I Have to Pay?
    LJ256 - Your Question:Hi, I do 20 hours per week at minimum wage which equates to around 150 a week however I’ve been getting…
    4 September 2018
  • 123
    Re: A Guide to Unemployment Benefits
    Please could advise if employers are allowed to make your role redundant due to wanting to increase your hours? I work 90%…
    4 September 2018
  • Mike
    Re: Taxation for the Self-Employed
    Im registering self employment as of the 10th september 2018 i was wondering when i need to pay my yearly tax and NI bill will…
    3 September 2018
  • LJ256
    Re: How Much Tax do I Have to Pay?
    Hi, I do 20 hours per week at minimum wage which equates to around 150 a week however I’ve been getting taxed on this is that…
    3 September 2018