Why UK Buy-To-Let - Hoxton Capital Management
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Why UK Buy-To-Let
Would you like to know more about investing in UK buy-to-let market?
1. 3. 5.
What? Where? Who?
2. 4.
Why? How?
...Do it with our guide in 5 simple steps!
UK buy-to-let - the basics
2016 marks the 20 year anniversary
of specialist ‘buy-to-let’
loans being introduced for landlords.
Buy-to-let means buying a property that you plan to rent
out to one or more individuals in order to make a profit.
The profit can be from the monthly rent, the capital
Since then, the UK buy-to-let market
1.What?
gained during the period of ownership or (ideally) both.
has grown to be worth more than
$1 trillion. So what is buy-to-
Over the past 20 years, buy-to-let has gone from being
let and how can you get
a specialist investment model for the wealthy to a
involved?
mainstream means of earning money.
For some, buy-to-let is an easy way to earn additional
income, over and above their day job. For others, it is
a full-time occupation. And for some, buy-to-let is an
investment in their future, providing an alternative to a
pension as a means of funding their retirement.
The
Buy-to-let’s serious boom years were 2005 to 2007. It was that
period which transformed it into a mainstream investment activity.
Nowadays, nearly one in five homes in the UK is owned by a private
landlord. According to government data, by 2032 a full third of homes
are expected to be owned by buy-to-let landlords.
numbers
2016
2032
20% 33%
Understanding your yield
The To work out whether your buy-to-let property will make you money on a monthly
numbers basis, you need to calculate the property’s yield. You will need to know the price of
the property, the monthly rent and the cost of any mortgage repayments and regular
costs (like insurance, maintenance and management fees). Then you can work out what
your yield will be.
So, that’s UK buy-to-let 2016 in a nutshell.
Like what you hear? Then read on to find out why it’s such a good idea!
Net Rental x 12 months
Rental Yields = x 100
Purchase Price
The rise of the UK buy-to-let market hasn’t occurred by chance. It
has been the result of a set of circumstances unique to the UK.
Andy Golding, the chief executive of One Savings Bank, sums it up nicely:
“Private renting isn’t a flash in the pan, and 80% of new households
since 2001 have been accounted for in rental properties. While for
many it is a lifestyle choice, the ongoing squeeze on wages, rising
house prices, not to mention difficulty in obtaining sufficient
mortgage finance is accentuating this shift in tenure from
2.Why? owner occupation to long term renting. In many ways, Britain is
becoming a more normal nation, much more like its continental
neighbours as a result.”
80%
English Housing Survey 2013/14
Why?
The level of owner occupation in the UK The increase in renting in the UK has
(that is, the number of people who actually impacted significantly on younger
own the home they live in), is at its lowest people. The latest English Housing Survey
level in nearly three decades. In 2013/14, showed that 48% of those aged 25 to
the English Housing Survey showed that 34 were renting from private landlords,
just 63% of the UK’s households were with owner occupier levels for this age
owner occupied, 17% were social rented group falling from 59% to 36% in a single
and 19% were privately rented. The last decade.
time that owner occupation levels were
this low was in 1985, when they sat at
62%.
The new
The demographic shift has led to the rise of a new
generation of renters. Modern tenants have
developed their tastes and preferences, forcing buy-to-let landlords
renters
to up their game when it comes the properties they are offering. Young
professional renters have clear aims in sight when it comes to the homes
they live in. Properties must:
ąą Be centrally located
ąą Have excellent transport links
ąą Offer a superior living environment
ąą Provide access to essential local amenities
(supermarket, cashpoint, restaurants, etc.)
ąą Provide added value (like a gym, off-street parking or a concierge service)
‘Generation rent’ is shaping the future of the UK buy-to-let market. Their
demands must be met – and those landlords who step up to meet
them are in line for strong yields.
Opt for a thriving city
1
3.Where?
The UK has a number of standout cities when it comes to economic credentials. London obviously
dominates the south, but the centre and north of the country are home to a number of excellent
urban locations for the keen buy-to-let investor. Cities like Liverpool, Leeds and Manchester are racing
The UK is a big place, but ahead when it comes to attracting a young, talented workforce – and it is just that group of young
choosing your buy-to-let
property’s location isn’t
professionals who are looking for premium rental properties. Priced out of the housing market, they are
turning the situation to their advantage by demanding the best that the rental market has to offer.
Five steps to
actually that difficult.
Investors just need to
keep a few simple
details in mind in Know your numbers locating the
order to find the perfect
When choosing your buy-to-let investment location, take a look at the latest available data and understand the value 2
buy-to-let
optimum location
for their 2016 of knowing your numbers. Figures have shown that the north west was the most lucrative UK region for rental yields
buy-to-let
investment.
between 2010 and 2015, with cities like Manchester and Liverpool at the head of the rankings. However, it was the south property
that dominated when it came to capital growth. Work out what’s most important to you (yields, capital growth or both) and
use that knowledge to inform your choice of investment location.
Think local
So, you know your city and you know roughly where your target tenants like to rent. But that’s still not enough! Where are the local 3
facilities like supermarkets, restaurants, decent pubs and playparks? City centres are hotbeds of activity and a difference of just a few
hundred meters can have a significant impact when it comes to the returns you could make.
Understand your audience
You might have whittled it down to the city you want to invest in, but
4 you still need to do some homework. Who are you target tenants? Are
you looking for wealthy students, young entrepreneurs or a professional
family? Where do each of these groups usually rent in the city and what
are they happy to pay? The answers to these questions will make a big
Five steps to difference to the amount you can potentially earn from your buy-to-let
locating the investment.
perfect
Consult the professionals
buy-to-let
property Most investors will run out of time and interest roughly halfway through stage
two of the above points and that’s ok. There’s a reason that professional,
5 specialist buy-to-let investment companies exist – it’s so that they can
take care of the vast amount of data required to locate the perfect
buy-to-let property, undertake thorough due diligence and then present
you with the very best options of their research. The UK buy-to-let
market has had 20 years to mature – you’re not on your own when it
comes to finding the perfect location!Liverpool Gross yields
According to Centre for Cities, the population of Liverpool city centre more than doubled in the decade
to 2011 due to rising numbers of young professionals. The influx stimulated growth of Liverpool’s buy-to- by city
let market, and as demand for property continues to increase, the values are still going up. Liverpool city
centre house prices have risen by 40% in the past three years, according to Zoopla. The unprecedented (2016Q1)
demand looks set to continue, making Liverpool one of the hottest property markets in the UK right now.
Manchester
Often referred to as the capital of the North, Manchester is a booming city with a population of more
than 514,000 with an always rising demand for city centre homes. In the two decades since Manchester
began a programme of substantial regeneration, property values have risen by 261.24%, according
to Zoopla. With Manchester positioned at the centre of the Northern Powerhouse, it looks like a
situation that is set to continue long into the future.
Leeds
The city of Leeds, in West Yorkshire, has a population of nearly half a million. It is the largest legal
centre in the UK, other than London, and a hub for the financial services industry. In the past year,
property values have risen a 7.44% based on Zoopla’s data. Average prices are below those elsewhere
in the UK, meaning investors can enjoy a low entry point to the market, but are rising steadily, creating
excellent potential for capital gains. Source: Home Track City Index Q1 20164.How? Once you’ve decided on where you’re going to buy, you can
move on to the purchase of your chosen property. Just as with
any other property purchase, you can either buy the home outright
or do so using a mortgage.
Many off-plan investment properties (meaning you are purchasing prior
to full construction of the property) are able to be mortgaged and come with
varying payment plans, typically from 25% deposit to exchange contracts, and in
the case of lower value property, staged payments required from 50% to 75% of the
total purchase price to be paid in instalments prior to completion.
Deposits for buy-to-let properties need to be in the region of at least 25% to 30% of
the property’s value in any case whether you are buying cash or with a mortgage,
so you need to have enough capital available to cover this if you are serious
about becoming a buy-to-let landlord.
It also important to that you undertake the purchase through a solicitor
experienced in buy-to-let purchases and in particular off-plan
purchases if that is the type of property you are investing in.Let’s talk taxes
Getting
Income from your property is taxed at the same
rate as your other income, although you can deduct a
started
range of costs from it in order to reduce your tax liability.
Deductions include: Once you’ve worked
out your finances and
((Letting agent fees decided that being a
((Council tax buy-to-let landlord is the
((Utility bills (if you pay them on the tenant’s behalf) way forward, it’s time to
((Buildings and contents insurance talk to Prime Centrum! We
((Essential maintenance costs deal with all aspects of the
((Damage and repair costs buy-to-let process, from
the property purchase to
Buy-to-let landlords have to pay capital gains tax (the tax on lettings and management.
any profit made when the property is sold, at either 18% or Our expert team is on
28% dependent on which tax bracket you are in) and stamp hand to support you
duty, which is charged at 3% over and above usual rates through every step
for homeowners buying an additional property. of your exciting new
verified and will meet 125% or more of the monthly venture.
interest payments.Successful buy-to-let investors are those who do their research Anyone who has the capital required and the drive to get started
thoroughly and know their numbers. They also understand the can become a buy-to-let landlord. There are already two million
legal responsibilities of being a landlord and take their duties buy-to-let landlords in the UK and research from Paragon has shown
5.Who?
seriously. Landlord responsibilities include: that a further million homes are set to be snapped up by buy-to-let
ąą Keeping the property safe and free from health hazards investors in the five years to 2020.
ąą Ensuring all gas and electrical equipment is installed safely
and maintained Many landlords opt to purchase a buy-to-let property that has the option
of a letting agency and a management company to take care of these
ąą Fitting and testing smoke alarms and carbon monoxide details. This allows the landlord to fulfil his or her legal obligations through the
alarms appointment of appropriate professionals, reducing the time and attention that
ąą Providing an Energy Performance Certificate the property requires.
ąą Following fire safety regulations
ąą Protecting your tenant’s deposit (in a government-
approved scheme)
ąą Checking your tenant has the right to rent your property
Are you ready to start profiting from property?
ąą Providing your tenant with the UK government’s ‘How to
If you’re ready to take on your first buy-to-let property, or to expand your existing
rent’ checklist
portfolio, then the Prime Centrum team is here to help. Contact us today to discuss how
soon you can look forward to profiting from the UK’s extensive buy-to-let boom.info@hoxtoncapital.com
www.hoxtoncapital.com
+44 203 917 3757
160 City Road
London, EC1V 2NX
United Kingdom
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property prices can go down as well as up.
We recommend that all appropriate commercial, tax and legal enquiries and advice is obtained before entering into a legally
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