Is property the best investment?
The past couple of years have seen one of the worst downturns in the housing market since World War II. According to Nationwide Building Society, the average property has fallen in value by around 20 per cent, with some areas – and some property types – seeing even deeper cuts to the value of homes.
But there are signs that the market is starting to improve. “I see 2010 as being the time when canny investors start to look again at the property market,” says Ray Boulger, mortgage technical manager at broker John Charcol. “They are seeing that property probably won’t get any cheaper and there is still demand for good quality accommodation in the right location from tenants.
And while property prices have fallen, rents have not seen a similar dip. According to research from Paragon Mortgages, a specialist buy-to-let lender, most landlords have been able to maintain their charges over the last couple of years, with a significant minority saying they have even been able to raise them.
But while properties are now cheaper, mortgages are not so easy to come by. “Many specialist lenders [which often provided investment mortgages] have closed their doors as a result of the credit crunch,” says David Whittaker, managing director of broker Mortgages for Business. “Those that are still lending have much stricter criteria.”
The biggest of these are the size of the deposit and what’s known as the rental income ratio. Buy-to-let mortgages are not the same as those for owner-occupiers; lenders use different rules when assessing an application. For a start, you’ll need a deposit of at least 15 per cent, and to access the best deals, you’ll want to have 25 per cent of the property value. The rental income ratio is how much of the rent will cover the mortgage. In the past, you may behave got away with the monthly mortgage payment being the same as the rent – know as 100 per cent. Nowadays, lenders insist on at least 125 per cent, which means that if your mortgage is £1,000 per month, the property must be able to attract a rent of £1,250 per month.
Once you’ve decided on property as an investment, there are various rules and regulations that you need to abide by. The absolute key law relates to gas. If you have any gas appliances in the property, they must be safety checked once a year and a copy of the safety certificate given to any tenants. Aside from the hideous possibility of being responsible for any harm coming to tenants as a result of a gas accident, failure to get a safety certificate could cost you a substantial fine or even a prison sentence.
You now also need to get an Energy Performance Certificate. They’re the same as those required within Home Information Packs for property sellers, and are there to show how energy-efficient the property is – fixtures and fittings like double glazing, insulated walls and modern boilers will all give your property a better score.
Insuring your property is also a different matter for landlords. Most conventional home insurance products don’t cover you if you have tenants, so you need to take out specialist landlord insurance to make sure you have proper protection.
Related Articles:
Loading ...
