Buy to let: the challenges and opportunities for landlords

Despite some lenders having tightened their eligibility criteria, there’s still an appetite for buy-to-let landlords across the market, with a wide range of mortgage products available at competitiverates. While this certainly provides food for thought for many, there are a few things to considerbefore you decide whether or not the landlord arena is right for you.Immediately after the mini budget was announced, lenders began to temporarily withdrawproducts or significantly increase interest rates. This in turn led to rising mortgage rates foreveryone, including landlords. These higher mortgage costs have resulted in an increase inrental prices.It’s no secret that landlords are leaving the market - having sold 35,000 more properties thanthey bought across 2022.
By The Newsroom
Published 29th May 2023, 05:00 BST

For many, this comes down to a few factors. Firstly, there are stricter rules and criteria that landlords must adhere to, including recent tax changes, such as the Capital Gains Tax allowance which was cut in April this year.

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These changes are likely to put extra financial pressure on some landlords, which is contributing to their exit from the market.

Despite this additional strain in the current climate, it’s important not to overlook the opportunity the market presents to potential landlords looking to invest in property.

Andrew Milnes, Business principal, Mortgage Advice Bureau, BingleyAndrew Milnes, Business principal, Mortgage Advice Bureau, Bingley
Andrew Milnes, Business principal, Mortgage Advice Bureau, Bingley

Following COVID-19, many people are looking to move out of their parents’ houses and into rented accommodation, but are struggling to find anywhere due to the lack of rental properties available on the market.

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However, this surplus of potential renters with nowhere to go could put you in an attractive position as a landlord , though before you enter the rental market, it’s important to be clear from the beginning about what sort of landlord you want to be.

For instance, who is your target audience? If it’s students, then you’ll want to look for a property close to the town or city, with good transport links. Whereas, if you would like to rent to families, then you’ll want to consider being close to local schools and leisure facilities.

It’s also important to consider the rise in energy prices and how you’re going to afford it. Will you be covering the cost of this, or will you expect your tenants to? This will determine whether you advertise the property as ‘bills included’ or not.

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To apply for a buy-to-let mortgage, the lender will need to stress test your finances in order to check your ability to afford the mortgage at a given rate. They will also look into your finances to make sure you have a ‘buffer’ income which acts as an additional income to cover expenditures such as repairs and service charges.

Previously, lenders stress tested the rental income at 125 per cent of the monthly mortgage payment. However, this has since been revised in response to

the turbulent market and lenders now stress test at higher percentages.

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Given the complexities of the buy-to-let mortgage market, advice from an experienced mortgage broker is critical. Also consider the fees and challenges of buy to let, which is not all doom and gloom

Andrew Milnes, business principal Mortgage Advice Bureau, Bingley, tel: 01274 568832