Should I be buying a BTL property at the moment? How will the market change over the coming 6 months?
This is such a subjective question to ask, as interest rates have increased, and affordability calculations have become tighter. In the past it was very much the case that you only needed 20 or 25% deposit to purchase a Buy To Let (BTL) property, but we are finding that in recent times that deposit needs to be in the region of 40 to 50% for lenders to offer mortgages. For many BTL investors, this is a step too far, as they do not want to tie up that much capital in return for rental income. In addition to higher interest rates, we are also in a period of potentially reducing house prices. In fact, in the last month the average property price has reduced for the first time in many years.
All these things have compounded to mean that it has come as quite a surprise to a lot of investors, especially experienced investors in property, that they cannot achieve what they used to be able to in terms of borrowing based on rental income. Having said that, rental incomes are increasing significantly, partly because there is more demand in the market as First Time Buyers cannot afford to get their foot on the ladder. And of course, we all know that as demand increases in any market, so do prices. That is no different in the rental market.
All this places people in quite a difficult position when looking to invest money. For some, if they have the money to do it, the return they think they can achieve in terms of rental income may well be worth that investment. Others feel it is the right time to place their spare cash in a different form of investment, let it mature there, wait for a potential decrease in property prices, and then take advantage when the time is right. Historically it has very much been the case that, if you stay in the market for the long term, you are likely to make a significant profit; at least one that outstrips inflation, and other forms of more traditional investment. That said, it is getting far more difficult to make a profit on a BTL basis if you are only planning to do it in the short term. It will also depend on what you plan to do with the property when you buy it. If you are aiming to increase the value with redecoration or development, then that may negate any potential reduction in the value of the property if the market does slip. Even if you are, you will need a higher proportion of cash in your property than you would have done in years gone by, as development finance LTVs are also being squeezed.
All this tightening is not great for the casual investor and can be a minefield for a first time BTL investor. A mortgage broker can discuss what options there are for you on the finance market, but should not be making predictions about property prices. You’ll note the extensive use of words like ‘potential’ and ‘may’ and ‘feel’. I think the answer is no one really knows at the moment. Although times are a little calmer than when Lizz Truss was at the helm, it is still very uncertain what will happen next. Times of uncertainty create potential for great risk and also great reward. Often those two come hand in hand. Some investors thrive in that environment and others prefer to sit tight.
Ultimately, the decision is yours and yours alone. At Amram we are experts in getting you the very best deal we can on your property finance and will do so diligently whatever the current state of play in the market.