Why purchase property using a buy to let mortgage?
Buy to let Advice
Property investment is increasingly becoming a popular choice to generate an income, whether it be to acquire additional funds alongside regular employment or to serve as the main income from a portfolio of properties. Many of those looking to invest may not necessarily have large amounts of cash in order to buy property upfront, meaning they will often require the help of a buy to let mortgage. This is a popular way for investors to purchase property as it allows them to use borrowed capital in order to maximise the returns on their assets.
With an investment, there are often large payments required initially in order to see a long term gain. Some investors may not see the benefits of taking out a mortgage, particularly if they already have one against their own home or have just finished paying one off. Although the freedom of not owing money can bring peace of mind for some, very often when it comes to buy to let, a mortgage can allow you to become financially better off than cash buyers by leveraging. In other words, using borrowed capital for an investment.
Leveraging a property purchase benefits investors as a result of market prices increasing. As prices increase, the net worth of assets will increase. For example, a 10% annual increase on a property purchased for £100,000 is a profit of £10,000 in just one year. There are very few other low risk investments that see this kind of growth.
By leveraging, or gearing as it’s sometimes known, an investor can take their original £100,000 and instead of purchasing one property outright, buy four properties with the same amount. By using borrowed capital from banks and lenders, they would need a typical amount of £25,000 for each deposit but benefit not only from the annual profit on each property, but also by 4 lots of capital growth per annum. The money they would then require for mortgage repayments would be more than covered by the income they receive from the rental income, as well as being able to make a profit.
Return on Investment
Buy to let mortgages do often require bigger deposit than a standard residential mortgage, however, lending is based on the property and the rental income it generates, as oppose to an individual’s personal finances. This is why it’s vital that investors do enough research and due diligence on their property to ensure they are going to be getting not only the best returns, but also making a profit on their investment.
Location is a fundamental factor when considering buy to let property and it’s good to know where the best areas are to buy. Look for property that boasts high yields and strong potential for capital growth as it’ll cover all bases in terms of an investment. Properties in the North West are currently seeing the strongest rental yields in England and Wales with an average of around 7-8% with areas such as Salford now seeing house prices rise faster than London. Research really is important in order to generate maximum income.
Think About Timing
As with any investment, it’s important to think about the risks when it comes to buy to let and prepare for any possible scenario. The property cycle revolves around timing and knowing when is the best time to invest.
Depression – Recovery – Boom – Downturn
The depression is the period in which house prices are low and as a result, few people buy. The recovery happens as prices start to pick up and more confidence is gained in the market. The boom is the best time to buy as prices are growing but remain sustainable, and the downturn is where the cycle picks up again. Not buying at the right time when using a mortgage can result in negative equity and low capital appreciation. However, the warning signs are there when knowing what to look out for. Those who are unsure about timings can seek advice from property investment specialists such as Sequre, who can advise on the best times to buy and when it might be beneficial to hold off.
Whether purchasing using a mortgage or outright as a cash buyer, it’s important to remember that investment is about long term gain. Although investors can see their assets increase in value and their financial goals met within a few years, buy to let shouldn’t be viewed as a “get rich quick” scheme.
If you would like to know more about buy to let property and discuss the options available to you, contact Sequre Property Investment today on 0800 011 2277. We specialise in sourcing discounted and high yielding buy to let property. Our properties are in the best locations throughout the UK & overseas and are often pre-tenanted and furnished so investors have a hands-off, ready-made buy to let property gaining maximum returns from day one.
If you're considering purchasing an investment property and require a buy to let mortgage, or maybe you are thinking of refinancing existing properties to enable you to expand your portfolio, contact us today. Our team can recommend professional mortgage advisors who can help source the best products on the market for you. From straightforward buy to let mortgages to complicated ones involving large portfolios, we work with providers who are experts in this field. Call our team on 0800 011 2277 today.