Buy-to-let Investment In The United Kingdom

The term "Buy-to-Let" simply means the purchase of a property through the normal procedure and, when completed, the owner seeks to rent it out for a regular income, ideally exceeding annual mortgage repayments. This type of investment brings the benefit that during the time your property is being rented out and earning you an income, it is still appreciating in value, while someone else is paying some of or all your mortgage.

The "Buy-to-Let" Market in the United Kingdom

Buy-to-let investors the UK are looking at potentially strong medium to long-term returns. This is due to a downturn in the UK property market and a ready supply of rental tenants in many prime locations. In 2008, UK rental yields averaged 6.4% per annum, according to Paragon Mortgages, indicating the possibility of generating steady income to add to capital growth upon eventual resale.

In June 2008, the regions that achieved the greatest rental yields were: Wales (7.6%), the North (7.4%) and the North West (7.3%). Average UK rents are now just under GBP 1,000 per month (increasing 9.3% above the previous year’s average).

Buy-to-let investors are relying on the fact that in some prime city locations, strong tenant demand now exists, as a result of the downturn in the sales market, making the rental market a sector well worth entering. With average portfolio gearing of under 40%, landlords are in a strong position to invest further into the rental sector.

Purchasing a property to let in the UK involves careful consideration as to whether or not the property is ideally located, whether for the tourist or the domestic market. Careful analysis will need to be done on matters such as accessibility to airports, roads and local amenities, as well as what type of tenant you are targeting. Early investment and the correct formula to suit your market should bring excellent returns from your buy-to-let property in the UK.

Buy-to-Let

(Example Only)

Case Study

John decides to purchase an investment property and after joining the IPIN and discussing his requirements with our investment experts, he decides that the "Buy-to-Let" investment strategy is for him.
John has savings of around €80,000.

Our investment advisors suggest property development X which has been vetted by the IPIN (International Property Investment Network) as a solid investment opportunity and meets with John's deliverable criteria.

Investment property X is a new development with beautiful sea views and priced at €250,000.

Initially John pays his reservation fee of €3,000 to hold the property.

Next John pays a 30% deposit of €75,000 (minus his €3,000 reservation fee already paid). Our investment specialists negotiate a mortgage for John for the remaining €175,000 at a rate of 2.75% (example only) this translates to a monthly mortgage repayment of €481.00 (interest only) which is equal to €5,772.00 over 12 months.

John starts to rent his new property immediately and during the 3 months "High Season" he receives €2,000 per month in rental income. These rental payments exceed his annual mortgage repayments and still leave John with 9 months of rental potential to make a further profit.

If we assume that average rental rates for John’s new property are as follows (conservative figures):

• High Season - €2,000 per month
• Low Season - €1,300 per month

Now we assume that John decides to go on a short term rental strategy maximizing his income over the High Period. He easily rents his property for 3 months during the high period earning €2,000 per month. After this period, he has a delay in getting his next tenants but over the course of the year he rents his property for a further 6 months only.

• 3 Months x €2,000
• 6 Months x €1,300

Total Rental income = €13,800 after subtracting the €5,772 Mortgage repayments John has made a profit of €8,028.
* In this example we have not included any rental management or community fees that may apply but also we have only assumed rental income for 9 months of the year and with many holiday makers now booking private accommodation via the Internet this is very achievable.

Short-Term Letting v Long-Term Letting

The final decision to be made by the "Buy-to-Let" investor is which letting strategy to use. It is obvious that the highest income is made by the property owner by short term letting during the high season. However you must bear in mind increased overheads due to constantly finding short term rental clients, as well as maintenance costs between clients.

Long-term rentals typically pay less per month but usually require far less input from the property owner. Some property owners choose to rent long-term during the low season, then short-term to higher paying tourists during the high season. The decisions to be made regarding your letting strategy are usually answered in part by the type of property you purchase.

The “Buy-to-Let" strategy is an important formula to get correct as even in a very busy market there is still competition. In order to maximise occupancy rates it is vital that you correctly select your location, property, unit and monthly rental charge as these factors will directly effect occupancy and, in turn, your rental income.

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