24
Feb
Is Buy-to-Let a Viable Option?
Q. In his will, my late father left me a sizeable
lump sum, which I want to put to work. Is buy-to-let a viable
option?
A. Absolutely, yes! In fact, after a bit of a slowdown in the
immediate aftermath of the credit crunch, the buy-to-let sector is
booming once again.
Why? Well, the main reason is that with the continuing national
shortage of housing stock, demand for rental property has soared.
Research shows that with the size of deposit required by lenders
forcing many young people to postpone buying their own home, the
majority of newly-formed households are now more likely to be in
the private rental sector.
This massive surge in demand, which shows no sign whatsoever of
tailing off in the foreseeable future, has in turn driven up rental
values right across the country. And this against a background of
lacklustre performance by most of the more traditional investment
alternatives – a factor highlighted by the turmoil in world
stock markets over the last couple of years. In 2011, for example,
the yields from buy-to-let property (i.e. rental income as a
proportion of the purchase price) averaged 5.4% - the best since
2003. In contrast, the FTSE All-Share Index yields 3.8%, UK
Government pay 2% and the Bank rate is just 0.5%!
As a result of all this, lenders have been returning to the
market in a big way. A recent article in the national press
reported that the average interest rate on a buy-to-let loan
dropped from 5.31% to 4.79% over the last two years. During the
same period, the number of deals available doubled. The typical
deposit required has also fallen back from 35%-plus to 25%. There
are even some deals that only ask for 20%.
At the same time, however, lenders have clearly learned some
lessons. So, for instance, whereas in the bad old days you could
easily secure a B2L mortgage solely on the basis of the expected
rental income, lenders now typically require you to be able to
prove that you have an additional source of income of at least
£25,000 a year. Which, when you think about it, is no bad
thing.
Finally, add in the fact that prices are currently the lowest
they’ve been for years, and this is arguably the best time
ever to invest in property!