A Decade of Buy-To-Let

A Decade of Buy-To-Let
Author: Alan Wheatley Monday, April 09, 2007 at 10:50
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Buy-To-Let, the catchphrase that shaped a new generation of armchair landlords, comes of age. Andy McTiernan examines the phenomenon that turned the heads of the long distance investor as they crossed the commercial bridge into the 21st Century. Aided and abetted by the wisdom of Alan Wheatley and Grant Bovey, the leading lights at Imagine Homes, a company that has pursued and won immense success on the back of this tri-syllabic pillar of modern property investment
How widespread has the concept of buy-to-let become over ten short years?

“There are around a million households that make up the buy-to-let market in the UK alone. To put this in some kind of perspective, that population figure equates to property assets worth over 120 billion pounds sterling and the buy-to-let sector contributes a further 30 billion pounds to the UK economy each year. Buy-to-let has helped to transfer the art of investment in residential property into the mainstream of personal finance activity.”

OK, so which smart body of men and women coined the term in the first place?

“Buy-to-let was a phrase adopted by the Association of Residential Letting Agents (ARLA), in consortium with several lenders, to launch a new product ten years ago. A Buy-to-let investor is defined as a private investor who purchases residential property, using a mortgage, in order to rent out the accommodation to tenants. The property almost always remains a pure investment asset, from which they wish to earn a good rental return and hope to harness capital gains as house prices rise over a period of time.”

Please explain the lending differences as far as mortgage approval is concerned, I have an exam in the morning?

“A Buy-to-let mortgage is a catchy phrase which has stuck around and raised interest in residential investment and the status of the private landlord over the last decade (excluding the tax man one supposes).

With a traditional residential mortgage, an applicant’s personal income is used to cover the cost of the mortgage. With a Buy-to-let mortgage, the property needs to generate sufficient income to at least cover the cost of the mortgage with less emphasis on the applicant’s income. As the market has evolved, there are now hybrid products that take earned income and rental income into consideration before assessing the amount of mortgage that a bank will lend.”

How does the mortgage provider assess the lending potential in this case?

“The lender’s principle interest with Buy-to-let mortgages is in the property on which the mortgage is being taken out, especially the rental the property is generating, or will generate once it is tenanted. The majority of lenders use a rental calculation to work out the maximum amount a landlord can borrow. A surveyor will value the property for the lender, both in terms of actual property value and also rental income, to ensure that accurate figures are received by the lender.”

Let us assume that all is rosy in the eyes of the lender and the property in mind bears up under the level of scrutiny, what percentage of the purchase price can you realise via a mortgage?

“Most lenders who are prepared to lend to expatriates investing in the Buy-to-let market will approve in the region of 80 per cent of the value. The rule of thumb tends to be the higher the value, the lower the lending percentage.”

How well has this kind of investment approach been received among the expatriate community in the Middle East region?

“Coincidentally, I remember the Buy-to-let scheme when it was originally launched in the UK some ten years ago. For the majority of that time I have been based in Dubai offering Buy-to-let schemes to overseas clients. The interest has grown over the years and indeed the buyers are not limited to Dubai. There have been buyers from other parts of the GCC such as Bahrain, Kuwait and Abu Dhabi, as well as stepping further afield to Singapore, Hong Kong, Kuala Lumpa and Tokyo. The interest in the Buy-to-let market does not appear to be waning and in fact looks set for a growth spurt.”

What level and type of property is generally snapped up by the avid expatriate buy-to-letter?

“Sites that have made their way into the overseas market range from high value Central London apartments, to more affordable flats in Greater London. There have also been offerings from outside London, in the main cities such as Manchester, Leeds, Liverpool, Edinburgh and Bristol, to name a select few. All these properties have their relevant merits – and all will almost certainly have proven over time to be good investments.”

If you were to look back at the way the principle has evolved, would you say that it has lived up to hype?

“The conclusion is that ten years after the launch of Buy-to-let in the UK, it has been of major benefit to both landlords and tenants. The quality of rental accommodation is improving year on year, creating greater competition in the marketplace. The choice of new build schemes available around the UK is expanding and these now have a proven track record of success in the Buy-to-let market. And, should you own the property for a reasonable period of time, the capital growth element alone leaves most landlords confident about their decision to invest in this sector of the market. “

In the event that you are living and working for any reasonable length of time in a tax free environment like Dubai, then buy-to-let is certainly the most expedient method of getting on to your domestic property ladder. Especially as all the spadework in terms of organising tenants, furniture and fittings and collecting the rent is generally all done for you. I can handle that, “pass the channel changer please darling!”