Let to buy mortgages are becoming increasingly popular as home owners shun the old fashioned way up the property ladder facing a depressed property market. Some become accidental landlords falling in love with a new home but finding themselves unable to offload their old one at a price they consider reasonable whilst others see the attractive rental yields and opportunity of let to buy and plan it from the beginning.Whilst researching for this article I chatted to one broker who told me his clients would love to sell.
My clients would, of course, love to sell their old property. They just can’t find a buyer prepared to pay a fair price and with his job moving they simply have to find a new home for the family. Luckily they had been overpaying their mortgage and only need to raise up to 60% to fund their new purchase which should make this a profitable little venture.
This is a trend being repeated across the country. Many workers are finding themselves having to travel to find their ideal job. Often this means relocating the family at a time where property prices are not ideal. Sure there are some bargains if you’re buying but that doesn’t help if you make a huge loss on your old property. By keeping hold of it as an investment many former home owners become landlords and give themselves an opportunity to make a nice profit.
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The other appealing factor about obtaining a let to buy mortgage to purchase new property at present is that rental yields (the money you make from renting compared to the property value) are relatively high (over 5% in a lot of the country) at a time when interest rates are noticeably low. This combines to make buy to let property more profitable than at many times in the past. It also puts the opportunity to make a profit up against the definite loss that selling now would mean to many families.
There are some significant risks in becoming an amateur landlord and applicants considering this should take advice before pressing ahead with becoming a landlord. One of the big issues at the moment is that low interest rates are masking potential risk from future rental shortfalls. If interest rates move up at a time when the economy is not fully recovered rents are unlikely to follow. This may lead to landlords suffering a period of low profitability and little improvement in the saleability of their portfolio. As with most investment landlords need to be able to take a long term view and be financially stable enough to ride out some of the swings of the market. Some ‘accidental’ landlords will have to think about whether they are able to take on this level of commitment.