The housing market may have slowed, but in some parts of the country property is out of the reach of most first-time buyers.
But there may be a way to get a foot on the property ladder.
How buy to let could help you afford a home
Average UK house prices reached an average of £226,000, according to the Land Registry and the Office for National Statistics (ONS).*
For first-time buyers, this is a disaster. Having to scrape together a deposit in the region of £50,000 while renting is an impossible strain on most people’s budgets. The problem is worse in London, where house prices average £482,000.
However, there is a way to get onto the property ladder, by continuing to rent in and buying elsewhere in the country with a buy-to-let mortgage.
First-time buy to let
It is commonly believed that buy-to-let mortgages are only available to people who are already homeowners. This is not true, and there are now several providers offering buy-to-let mortgages for first-time buyers, including Barclays, bringing this obscure route to home ownership into the mainstream.
How it works
Buying a home in this way can make it possible to get on the first rung of the property ladder.
The income from a buy to let property should cover the mortgage payments on the property itself and may provide a surplus which could put towards rent.
Alternatively, the first-time buyer landlord could use the surplus to pay off some of the mortgage capital. This would reduce their debt and increase the equity they hold in the property. Building up equity in this way can make it easier to afford the home they would want to buy for themselves in a few years’ time.
What are the returns on buy-to-let?
Property prices in the North are more affordable than London and the South East, and the combination of low purchase prices but reasonably high rents makes for a good return on investment.
So, while in London and in many commuter towns you can struggle to find a two-bed flat for £300,000, in Northern towns such as Sheffield, a similar property could cost £70,000. It might be let out for £750 a month or £9,000 a year, while your mortgage payments could be half that.
Finding out more
Of course, you need to know the risks with buy-to-let. House prices are still on the up, but growth has slowed, and they could fall again, leaving you without the capital growth you want. What’s more, rates remain low, making it relatively easy to cover the mortgage with rental income, but would you still be able to do that when rates rise? You may be able to secure an attractive deal now, but if rates went up you might not be able to remortgage and find yourself on your lender’s high Standard Variable rate.
Do you have sufficient cash reserves to deal with ‘voids’ when the property stands empty and no rent is coming in, or with major repairs such as a new boiler?
It’s also essential to understand the tax on buy-to-let, which could mean an attractive looking investment is really a loss-maker. Expert advice, not just on your mortgage, but on tax, insurance and more is essential.
At Continuum, we have the expertise you need. For the answers to your housing questions call us now on 0345 643 0770, or email us now at [email protected]
Your home may be at risk if you do not keep up repayments on a mortgage or other loan secured on it.
The Financial Conduct Authority does not regulate some aspects of Buy to Let Mortgages.
homesandproperty.co.uk – Market overview: UK house prices up 5.1% as London property market remains sluggish but steady – 16th January 2018*