There are several reasons for looking at property to
purchase for the purpose of letting.
Property prices are still falling and providers of mortgage products for
buy to let are offering competitive rates.
Added to this we are experiencing a rise in rents due to a shortage of
good rental property. The shortage of
mortgages with a high LTV (loan to value) has led to an increase in interest in
rented property. In line with our
friends on the Continent the focus is now beginning to move away from home ownership
towards rental.
So what do you need to look out for if you are looking to
enter this market? To begin with the
property is likely to be in the lower price bracket and will therefore need to
be chosen carefully.
Start with speaking to the selling agent and find out
what rental income it is likely to generate, whether there are comparable
properties that can considered and more importantly whether there is a high
demand for rentals in that area. Check
that the selling agent has experience in the rental market. This is an important exercise because your
mortgage company will be looking at the rental value when it comes to valuing
the property for security purposes.
Make sure you always invest in a full survey. This is likely to cost around £400 and will
be worth every penny. You need to make
sure there are no hidden surprises such as the need for a new roof or
other major works that could upset your
financial calculations and turn a profitable investment into a drain on your
resources. Don't do what a large number
of purchasers do and rely on the mortgage valuation. This is dangerous because the lender's
surveyor is only only interested in making sure the property offers adequate
security for the loan.
A survey may also help you secure a reduction in the
selling price. I act for a number of
investors in property and in my experience you can normally with a full survey
look to save around £2000 on the agreed price.
Many of the investment properties on the market are flats
or leasehold properties. Approach these
properties with extra care. They are
often cheap because the unexpired term of the lease has fallen under 80 years. The reason for this is that once a lease
falls below this threshold the cost of extending the term can prove
prohibitive.
Leasehold property
can also come with hidden cost which again if not checked can turn a potential
investment into a loss. Most properties
require the owner to pay a service charge and ground rent. Typically this will be around £1200 per
annum and needs to be factored in when looking at the expected return.
You should always ensure extra funds are set aside to
cover any major work that might have to be undertaken to the property. Redecoration to the common areas of the
building and replacement of lifts can often cause the service charge to
increase significantly. A new lift can
cost around £100,000!
There may be a reserve fund set aside for major works of
this type. If there is not I personally
would not purchase unless I knew what work was likely to take place within the
next 10 years.
Being a landlord is not just about collecting the
rent. There are a raft of legal
obligations to meet relating to deposit
holding gas electricity just to mention a few.
Make sure the surveyor is told you intend to let so that he can check
out the gas and electricity installations.
I recently had a client complain because on completing the
purchase of a buy to let property she found the gas fire in the lounge was not
working. I politely reminder her that
she was advised to arrange a full survey before committing to the
transaction. Cutting corners to save
money can often prove to be a costly
mistake.
The last and most important piece of advise is to always
choose the right solicitor to act for you.
Choose someone like me who has experience in this field and who knows
what to look for particularly when it comes to purchasing a leasehold
property. This is a specialist area and
requires expertise.
MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk
