Is buy-to-let still a good investment in north London?
PUBLISHED: 12:13 15 February 2016 | UPDATED: 12:13 15 February 2016
Property expert Simon Gerrard considers whether or not buy-to-let will remain a viable investment in the light of recent changes
Following the Chancellor’s changes on mortgage interest relief, stamp duty and fair wear and tear rules; I am being asked if buy-to-let is still a viable investment.
Given the amount of coverage in the media with headlines heralding the demise of buy-to-let (BTL), many may feel the answer is – NO!
However, I am quite sure that investing in residential property, to let it out, can still offer an excellent investment option.
First let’s look at the basics and then I will discuss why I believe BTL can offer an excellent opportunity worth considering.
It is true to say that it is not for everyone and before going any further you must take expert advice from your financial planner or tax adviser. Even seasoned landlords must do their homework. You need to look at BTL as a long term investment based on the rental return.
Always look at the yield the property gives. This is the annual rental income as a percentage of the purchase price. Currently a good yield will be in the region of four per cent. You must also build in the ongoing running costs such as insurance, service charges and agent’s fees.
Also consider what impact an increase in mortgage rates may have on your return. Although recent indications from the Bank of England are that rates may not rise this year as previously thought, they will certainly rise at some point.
You should allow for voids. This is when the property is empty between tenancies. It is advisable to allow for a six-week void period in your calculations. You must also have a contingency fund available for emergencies.
Good maintenance and keeping the facilities and décor up-to-date will make your property a good place to live. Unless you have the time and inclination to deal with the problems that do arise with any property, employing a good agent to handle the letting and manage the property will be money well spent.
The increase in stamp duty for second homes including BTL will add thousands of pounds to your up-front costs. If BTL is the right choice, you still have time, just, to complete a purchase before the April 1 deadline. This is also the perfect time to sell your BTL property and take advantage of the increased demand.
But why do I believe that BTL will remain a very good option for certain investors after April 1? The private rented sector is, and will remain, an integral part of the UK housing market. This is partly because for many, it is simply impossible to buy, despite the incentives Government are offering such as “Help to buy”. But also because there are a significant number who choose to rent as a lifestyle choice.
North and north west London remain sought after areas to live in. With the shortage in supply and no letup in demand, it is quite probable that rents will rise at a higher rate than in recent years and this increase in yield together with a steady rise in capital growth are set to counter any negative impact of the changes.
Simon Gerrard is the managing director of north London estate agents Martyn Gerrard.