The Finance Blog

In recent years the housing market in the United Kingdom has seen a huge increase in the demand for investment properties and buy to let mortgages. This housing boom has been brought about largely by the promise of a house price increases and a regular rental income.

There are other factors of course that have played a part in this transformation of the UK housing market. Property has long been viewed as a safe investment by the British people. Our love of bricks and mortar is evident countrywide. The pension crisis in the nineties has only added fuel to the fire in respect of the investor's need for a reliable long term investment.

Buy to Let mortgages are essentially the same as the standard owner occupier type mortgage. There are however a few key differences. The main difference between the two types is that at the time of writing Buy to let mortgages do not fall under the banner of the Financial Services Authority (FSA) watchdog. The other key differences are in the way that the buy to let lender assesses these applications in respect of both risk and affordability.

Buy to let lending has long been perceived by many lenders as carrying a greater degree of risk. The thinking behind this is that a tenant is less likely to look after the property with as much care as the owner occupier. The difference between the two rates has become much less obvious however in recent years largely due to the level of competition now prevalent in the market place. It is now possible to see buy to let mortgage rates on par with their owner occupier counterparts however the lender arrangement fees tend to be a great deal higher.

Secondly the way in which the buy to let lender assess affordability is a different calculation to that of income multiples or a debt to income ratio. Buy to let lenders will assess affordability by taking into account rental income – A logical method one would say.

The buy to let bandwagon does have however many pitfalls. The main risk associated with buy to let property investment is the lack of suitable tenants. There are many considerations that must be taken into account when looking to invest in property – The main two factors being location and type of property.

There are many areas throughout the country that are completely saturated with rental properties. This can pose big problems when attracting suitable tenants. It is well worth taking time out to research areas where there is a lack of rental properties. It is also important to realize that certain types of properties will be easy to rent out than others – for example one bedroom flats tend to be more in demand than two bedroom ones. This consideration also ties in with locality.

The most important thing when thinking about investing in property is not to rush into anything without firstly planning ahead.

  

Tuesday, 12 August 2008