What are the considerations for buying a buy-to-let property in 2022?
1. Is There Enough Demand for the Area?
This is an important consideration when looking at areas for buying a rental property. Speak to local letting agents in the area and find out how much demand they are getting for specific areas or types of properties. Local knowledge is invaluable if you are unfamiliar with the area yourself.Do some research yourself by checking property websites and seeing how long listings are staying live for before being snapped up. It is also worth considering the transport links, schools and how commutable it is to the nearest city. These are all things that can directly affect how desirable an area is to rent in and how much demand it generates.
2. Financing the Property
As a general rule of thumb, the typical maximum loan-to-value (LTV) for a buy-to-let mortgage is 75%, meaning that you will need a down payment of 25%. Lenders like to see that the rent will cover between 125% and 145% of the mortgage payment.Each lender has its own specific lending criteria, but typically lenders will need to meet the following:
- 1. Have a good credit rating
- 2. Prove that you can afford to maintain the property
- 3. Have an annual income of at least £25,000 - especially if you are a first-time buyer
- 4. Have a minimum of 25% deposit
- 5. Be an existing homeowner
- 6. Are able to pay off the buy-to-let mortgage by the age of 75
If you do not meet all of these requirements, there may be specialist lenders that are willing to offer you a mortgage but it could incur higher charges than your standard lenders.
3. New Stamp Duty Changes
If you already own your own home and you are looking at buying an investment property, it will incur a 3% stamp duty surcharge.Here are the new rates for buying an additional property, as of September 2022:
- Up to £250,000 - 3% of the purchase price
- £250,001 to £925,000 - 8% of the purchase price
- £925,001 to £1,500,000 - 13% of the purchase price
- £1,500,001 and over - 15% of the purchase price
For more information on stamp duty rates, read our helpful guide here.
4. Consider All of the Costs Involved
Once you have bought the property, you may have to spend some money and time on getting the property ready to be tenanted. Depending on the condition of the property, it is important to factor in these costs, as it may affect the rental yield you are able to achieve.If you are investing in a property that has low demand for the area, you may have to spend more money to make the property more attractive to prospective tenants so it stands out from the rest.
It is also important to consider the type of tenant that you will have renting the property. If you are wanting to attract families or young professionals who are likely to rent the property for a longer period of time, you may want to invest in nicer fixtures for the property than if you were renting to students.
5. Choose the Right Area
Traditionally, many landlords would buy rental properties close to where they reside, even if the yield was not as high. This is outdated, as technology has evolved, it makes it easier than ever to invest in property in the best areas, wherever they happen to be.Take some time to research the hotspots where you can get the best return on the investment. By choosing a letting agent that can fully manage your buy-to-let properties, you can search for properties that will achieve the highest yield rate.