primecentrum Why UK Buy-To-Let 2016
Would you like to know more about investing in UK buy-to-let market? 1. What? 3. Where? 5. Who? 2. Why? 4. How?...Do it with our guide in 5 simple steps!
2016 marks the 20 year anniversary of specialist buy-to-let loans being introduced for landlords. Since then, the UK buy-to-let market has grown to be worth more than $1 trillion. So what is buy-tolet and how can you get involved? 1.What? UK buy-to-let - the basics 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 gained during the period of ownership or (ideally) both. Over the past 20 years, buy-to-let has gone from being a specialist investment model for the wealthy to a 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.
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. 2016 20% 2032 33% The numbers
The numbers Understanding your yield To work out whether your buy-to-let property will make you money on a monthly 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! Rental Yields = Net Rental x 12 months Purchase Price x 100
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: 2.Why? 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 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%
Why? English Housing Survey 2013/14 The level of owner occupation in the UK (that is, the number of people who actually own the home they live in), is at its lowest level in nearly three decades. In 2013/14, the English Housing Survey showed that just 63% of the UK s households were owner occupied, 17% were social rented and 19% were privately rented. The last time that owner occupation levels were this low was in 1985, when they sat at 62%. The increase in renting in the UK has impacted significantly on younger people. The latest English Housing Survey showed that 48% of those aged 25 to 34 were renting from private landlords, with owner occupier levels for this age group falling from 59% to 36% in a single decade.
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 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 ąą ąą ąą Be centrally located Have excellent transport links Offer a superior living environment 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. The new renters
3.Where? The UK is a big place, but choosing your buy-to-let property s location isn t actually that difficult. Investors just need to keep a few simple details in mind in order to find the optimum location for their 2016 buy-to-let investment. Opt for a thriving city 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 ahead when it comes to attracting a young, talented workforce and it is just that group of young 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. Know your numbers When choosing your buy-to-let investment location, take a look at the latest available data and understand the value of knowing your numbers. Figures have shown that the north west was the most lucrative UK region for rental yields between 2010 and 2015, with cities like Manchester and Liverpool at the head of the rankings. However, it was the south 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 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. 1 2 3 Five steps to locating the perfect buy-to-let property
Understand your audience 4 Five steps to locating the perfect buy-to-let property You might have whittled it down to the city you want to invest in, but 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 difference to the amount you can potentially earn from your buy-to-let investment. Consult the professionals 5 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, 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 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-tolet 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 demand looks set to continue, making Liverpool one of the hottest property markets in the UK right now. Gross yields by city (2016Q1) 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 2016
4.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 Income from your property is taxed at the same rate as your other income, although you can deduct a range of costs from it in order to reduce your tax liability. Deductions include: ((Letting agent fees ((Council tax ((Utility bills (if you pay them on the tenant s behalf) ((Buildings and contents insurance ((Essential maintenance costs ((Damage and repair costs Buy-to-let landlords have to pay capital gains tax (the tax on any profit made when the property is sold, at either 18% or 28% dependent on which tax bracket you are in) and stamp duty, which is charged at 3% over and above usual rates for homeowners buying an additional property. verified and will meet 125% or more of the monthly interest payments. Getting started Once you ve worked out your finances and decided that being a buy-to-let landlord is the way forward, it s time to talk to Prime Centrum! We deal with all aspects of the buy-to-let process, from the property purchase to lettings and management. Our expert team is on hand to support you through every step of your exciting new venture.
Successful buy-to-let investors are those who do their research thoroughly and know their numbers. They also understand the legal responsibilities of being a landlord and take their duties seriously. Landlord responsibilities include: ąą Keeping the property safe and free from health hazards ąą Ensuring all gas and electrical equipment is installed safely and maintained ąą Fitting and testing smoke alarms and carbon monoxide alarms ąą Providing an Energy Performance Certificate 5.Who? Anyone who has the capital required and the drive to get started can become a buy-to-let landlord. There are already two million buy-to-let landlords in the UK and research from Paragon has shown that a further million homes are set to be snapped up by buy-to-let investors in the five years to 2020. 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 details. This allows the landlord to fulfil his or her legal obligations through the appointment of appropriate professionals, reducing the time and attention that the property requires. ąą Following fire safety regulations ąą Protecting your tenant s deposit (in a governmentapproved scheme) ąą Checking your tenant has the right to rent your property ąą Providing your tenant with the UK government s How to rent checklist Are you ready to start profiting from property? If you re ready to take on your first buy-to-let property, or to expand your existing 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.
primecentrum info@primecentrum.com www.primecentrum.com +44 (0) 207 183 6332 Suite 14 Ensign House Admirals Way Canary Wharf London E14 9XQ The information contained within this document is intended as a general guide. This information does not constitute an offer or a contract and we (or anyone in our company) do not imply, make or give any representation, guarantee or warranty whatsoever relating to the terms contained within. Any intending investor must satisfy themselves as to the correctness of any of the statements, plans or images contained within. Images are for illustrative purposes only. The content contained within is correct adhering to the previous statement at the time of publishing. Reasonable care has been taken by us in the preparation of this document but we do not accept any responsibility or liability for the information which has been provided by 3rd parties. We further do not accept responsibility or liability of views or opinions herein provided or provided by us or on our behalf (whether orally or in writing) unless we have expressly confirmed such information and/or views and/or opinions in writing as being such that it should and can be relied upon. The information provided should not be taken as financial advice in relation to the UK property market or property investment advice. We do not warrant the accuracy or completeness of the information and/or measurements and/or financial returns provided in this document and any intending investor should be aware that 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 binding contract to purchase a property. Copyright in and to this document and its contents belong to Prime Centrum Limited.