Why Invest in Buy to Let Property?

Investing in buy-to-let property has long been a favourite for investors, who prefer to invest in bricks and mortar than an investment fund.

Interest rates on savings accounts and the volatility of the stock market make the property market highly attractive for investors who are looking for a steady income, with the prospect of a modest level of capital appreciation in the medium to long-term.  

Capital Appreciation

Although historical performance doesn’t guarantee future performance, the average house price in the UK has significantly increased over the years.

The average house price in the UK has increased over 180% since Q1 2000 to Q1 2020 according the Nationwide house price index.

Investing in property is not a guaranteed method to get rich quick, it is better suited for investors who are prepared to wait to realise a better return, whilst enjoying the returns from rental income.

Low Interest Rates

Interest rates for buy-to-let mortgages are at a record low, providing a good opportunity for investors to leverage their investment.  

Buy-to-let mortgages have seen more restrictions put in place over the years, with higher deposits required and affordability tests, but this is there to safeguard to ensure that property investors don’t over stretch themselves.

Leveraging Your Investment

Purchasing a buy-to-let property with a mortgage provides you with leverage.

This allows you to purchase a property higher than your cash budget and benefit from low interest rates from mortgage lenders.

For example:

Mortgages aren’t guaranteed as they are subject-to-status.

‍

Buying Off Plan

Buying a brand-new apartment off-plan appeals to buy-to-let investors who want to benefit from buying at today’s value with a low deposit on exchange of contracts and having the benefit from any capital appreciation between now and completion, effectively leveraging their investment.

Opportunity to Add Value

With property, there is the potential to add value to the property. This may be through simply redecorating a buy-to-let flat, but could also include a full renovation, or, extending the property. Other methods of adding value could be securing a tenant who has been fully referenced and is paying a good level of rent and is on a long-lease.  

Property Prices are Negotiable

Buyers have the ability to negotiate the purchase price with the seller. Not all sellers have the ability or patience to hold out for the full asking price, presenting the opportunity for buyers to benefit from a discount.  

Buying in Limited Company

Whilst buy-to-let property investment continues to be a popular choice, investors are also having to manage changes to the taxation of rental income and many are looking for opportunities to offset the reduction in revenue from their rental income.

Property can be purchased in a limited company, which since the changes to the way mortgage payments are treated, is becoming more common.

Purchasing in a limited company, attracts corporation tax as opposed to paying income tax if you have purchased as an individual; therefore, this can be a tax-efficient method of investing in property.

Buying in a limited company can also help to fund portfolio expansion, have mortgage interest as an allowable expense, provide an opportunity to mitigate inheritance tax and it can be easier to change ownership. There are also challenges with buying in a company, with some mortgage lenders limiting products that they offer.