Buy-to-let is a popular form of investment at a time when stockmarket returns have been uncertain. There is currently much speculation on whether the trend of rising house prices will continue and this is certainly a matter for consideration for the potential investor.

But, remember, buy-to-let is a long term investment and short term jitters in the house price statistics should be overlooked in favour of sound long-term projections.

Also, rental yield can form a significant portion of the profit and needs to be included in the overall analysis. This chapter looks at selecting a property and financing the purchase, renovating it and applying for grant aid.

Checking the property market

If a property is to be purchased, it is sensible to become familiar with the property sales market. There are various ways of achieving this:

• Read the local newspaper.
• Obtain copies of local property lists.
• Speak to estate agents.
• Tour any preferred neighbourhood.
• View some properties.
• Keep abreast with the local economic situation by following the local news.

Choosing your buy-to-let mortgage

Most mortgage providers actively promote buy-to-let facilities and recognise it as a sound investment strategy. Competition between mortgage providers means that repayment rates will be keen, matching standard mortgage rates to owner-occupiers. In assessing borrowing limits, projected rental income is allowed as part of the borrower’s income calculation and some lenders will consider funding more than one buy-to-let property per borrower.

In determining the viability of a buy-to-let mortgage, it is of course essential to determine whether the rental income will more than cover the mortgage repayments and other expenses. As a general guide, monthly rental income needs to be at least 130% of the monthly loan repayment sum. Unlike standard mortgage schemes, buy-to-let rarely offers ‘100% of capital’ deals, and ‘85% of capital’ is likely to be the maximum on offer.

Mortgage interest payments can be an allowable expense to set against rental income in determining your liability to income tax. Your mortgage provider, local tax office or tax adviser will be able to help you check how this is likely to affect you. Chapter 11 explains more about the effects of taxation on your investment.

A buy-to-let mortgage is sometimes called a Residential Investment Loan and, because they are considered business investments, buy-to-let mortgages are not regulated by The Mortgage Code.

In subscribing to a buy-to-let scheme, you will almost certainly also have to:

• show you have a sound investment plan by providing
• facts and figures
• agree to a professionally drawn up lease
• use an ARLA registered letting agent to handle the letting
• pay for a comprehensive insurance policy
• agree to certain restrictions on the type of let and/or tenants.
• start organising your finance well ahead of any serious property hunting.

Choosing your property

Anyone seeking to maximise their capital return should time the buying of their investment very carefully. If the signs are that conditions are not ideal for buying property in your area, consider waiting.

Contacting a conveyancing agent

Nearly everyone will use a professional to conduct the conveyancing of their property purchase. If you do not already have a solicitor who handles your business, choose one:

• who comes recommended
• who offers a good, efficient service
• who offers value for money
• you feel comfortable about working with.

Drawing up a list of requirements

To have got this far you will have done a great deal of research and acquired a lot of information about what you require from your property. One way to make sure all that information is brought together usefully is to set down a list of requirements and features to look for in the property you seek. Your list may include the following.

The basic requirement
Type of property, room count, preferred neighbourhood, price limit.

The important features
Type of heating, style of windows, availability of a garden, need for outbuildings or garage, car access arrangements.

Desirable extras
Style of decor, useful accessories such as carpets and curtains, proximity to bus route.

Your list may have alternative or additional entries.