With this in mind, the team at www.onlinemortgageadvisor.co.uk have considered whether now is the right time to invest in a buy-to-let, outlining both the pros and cons.
Yes – consider buying
Increased demand
The Bank of England now expects inflation to get even higher, peaking at 13%, while experts have predicted interest rates could rise to around 4.25% by March next year. If interest rates do rise again mortgages will become even more expensive and subsequently, getting onto the property ladder will be even more difficult for many prospective buyers. In turn, this increases the demand for rental properties and gives landlords the ability to raise rents. For instance, according to Zoopla, this year’s figures show that in some areas of the UK, such as East Ayrshire in Scotland and Burnley in Lancashire, rental yield is as high as 8%*.
That being said, it’s clear that significantly lower house prices have played a role in higher yields for investors here, so keep in mind that location is everything when it comes to investing in a buy-to-let. While the property price may be low, there needs to be potential for house price growth and tenant demand in the area in order to get the best possible return for your investment.
Rising rents and capital growth
Following this, rental yields increase by about 2.3% a year, on average. Landlords have the autonomy to raise their rents to help offset the rise in their related costs and we’ve already seen many cases where higher mortgage repayments are being passed on to tenants. What’s more, rising rents continue to be driven by a shortage of available rental stock, while demand continues to outstrip supply, and this will likely take a long time to stabilise. At the same time, you could generate capital growth as your money grows and property value increases.
No - look at investing your money elsewhere
House prices
To get the best return from your buy-to-let, the price of the property needs to appreciate in the long term and for this to happen, the market must be on an upward trajectory. The average price of a property coming to the market has increased month-on-month but as interest rates have recently gone up again, coupled with the high inflation environment we are currently experiencing, this might cause the housing market to cool over the coming months, especially as we head into 2023.
Plus, many individuals won’t be able to afford to save for a house deposit, leading to a subsequent lack of demand for homes, further slowing price growth. Ultimately, if property prices do start to fall your capital will reduce. Also, if you have an interest-only mortgage, which most buy-to-lets are, you’ll need to make up for any shortfall if the property sells for less than you bought it.
Rising associated costs and affordability
Potential buy-to-let landlords also need to consider the associated costs that come with the investment. You’ll not only need to factor in the costs of stamp duty, insurance, and annual maintenance but also the costs of increasing regulation, such as annual gas inspections or legionella compliance, which can all add up and eat into any profits you make.
Additionally, the income you make from a property needs to cover the mortgage and the other associated expenses – if it doesn’t, we’d advise against investing in a buy-to-let. However, if you still want to use your deposit money for property investment, there are ways you can make it stretch further and a suitable broker can help if you’re still keen to invest in the property market.
