Buy-to-let a reasonable investment?

Morgage_Confused

recently remortgaged with woolwich on a tracker.
house value approx £285,000
current mortgage £185,000
monthly mortgage approx £1000

current savings approx £30,000

Now I was thinking to invest all our savings in some kind of buy-to-let investment property but am struggling to find enough deposit as im finding buy to let mortgages are asking for 25%. I dont have a problem saving up the extra few grand necessary for 25% deposit though(flats around here are about £150,000).
My main quandry is whether to blow all our savings in a buy-to-let venture or to just take the easy option and pay off our current mortgage whilst keeping a buffer for emergencies?

What makes more financial sense? A long term buy to let investment or a lump sum off of the current mortgage?

thanks

dunstonh

What is the rental yield you would be looking at?

Morgage_Confused

most yields around here would be 6%....at best.

holly_hobby

It depends on your attitude to risk and loss really .... as a buy to let can be costly over its term and is a gamble on return for a number of reasons.

• You already know that you req 25% deposit
• You will also need mge product fees and solicitors fees inc disbursements
• You will require a short hold tenancy agreement drawn up or have the letting managed by a letting agt (for a fee of course)
• You will need to take landlord buildings ins out (and I would also recommend contents ins for such events as a broken/smashed toilet, bath, wrecked kitchen, decoration etc .. etc .. etc... )
• Then you have to find a tenant
• You are responsible for all property maintenance inc an annual landlords gas & services check
• You need to delcare the rental income to HMRC for income tax purposes (net of allowable deductions such as mge interest, maintenance costs, letting agt costs etc). You can do this via your annual self assesment (which you will have to register for if not already using this service), or employ the services of an accountant.

On the sale of the property you will be subject to capital gains tax on any gain realised from the sale

Then you have to take account the fact that, at a time when you want to sell, the value of the property may have fallen due to market demand/conditions - can you accomdate any loss from this ? Do you have a fall back plan if the capital was urgently reqd and you couldn't sell or have difficutly in selling, your property ?

If you are comfortable with negatives, and intend to see it as a possible long term investment - then it isn't a bad idea if you get the right property and area (where demand is constant and rental income is bouyant - which means that any loss of tenant should be short lived until a new one takes their place).

I don't mean to sound negative in this post, I have rental property my self, but you must enter such an arrangement never lightlly, and with your eyes open and aware to all factors, to ensure you can make a balanced and informed decision for you and your family.

Hope this helps .. sure there will be lots of other comments and advice too ...

Holly

dunstonh

6% is not a bad yield. Although the risk for someone with no other savings is quite high. Plus by the time you take costs off that 6% and the fact that within a few years it probably wont be enough to cover the mortgage, may put you at risk as well. Plus, you said at best 6%.

For a high risk transaction, I would want more than 6%

Morgage_Confused

thanks guys.....crikey just realised from your post....6% yield is fine now on the current mortgage calculations.....if interest rates go up then future rental wont cover mortgage costs? is that correct?

dunstonh

.if interest rates go up then future rental wont cover mortgage costs? is that correct?

Yes. The long term average for mortgage rates is around 7.5%. So, for 6% to be profitable over the long term you would have to hope for long term low interest rates and/or hope for substantial capital gain.

As the last property price boom was built on easy credit and that isnt likely to return any time soon and with wages going down in real terms, the potential does not look good for mortgaged buy to lets. it is effectively only the devaluing of sterling and supply and demand that has seen property prices not fall by more.

An experienced landlord who can spot the opportunities can still make it as can those with building experience who can buy a run down property and renovate it cheaply. An inexperienced individual with just one property and hardly any savings is taking on a big risk.

Thrugelmir

Morgage_Confused wrote: »

most yields around here would be 6%....at best.

That's gross before interest costs, expenses and tax. Longer term the property may require refurbishment such as new bathroom and kitchen, perhaps a boiler.

While interest rates are low best to either repay the mortgage or invest in an ISA depending on the rate you are paying.

Daniel_gecko

Let's say you get yield of 6% (pre-tax)
You could get the equivalent of 4% in savings accounts (pre-tax)

If the property falls in value more than 2% every year you will lose money. Or if you have to do it up, repair anything, costs, interest rates go up...
Most non-sillies reckon prices are going to fall 20%+.
Be careful. This is a risky investment right now. If I were you I would pay off the mortgage or buy some shiny yellow stuff.