Continuing his ongoing series of interviews with important figures from the UK property market, Marc Da Silva talks about the buy-to-let property market with Karl Griggs, director at Commercial Processing Centre, the financial specialists.
Why are more people investing in buy-to-let property?
There are a number of reasons why more people are now investing in the buy-to-let property market, but the main reason is that buy-to-let property offers better returns than most other mainstream investments, including savings accounts offered by the banks. Buy-to-let properties offer cash flow income in the form of rent and the potential for values to rise.
Do you think average property prices and rents will continue to increase?
Many would-be buyers are struggling to get a mortgage to buy a property and are being forced to rent instead. This in turn is driving up demand for rental homes which is forcing up rental prices and providing buy-to-let investors with a better return.
With interest rates low and demand for rental accommodation high, both rents and house prices look set to grow further.
Lending in the buy-to-let sector has risen by 40% since 2008. Is there a danger that the booming buy-to-let market could pose risks to broader financial stability?
The growth in the number of people investing in the buy-to-let sector is causing property prices to increase in general, and that could prove to be a concern for many would-be homebuyers priced out of the market. But I do think that the crackdown on mortgage interest tax relief announced by the Chancellor in his summer Budget may deter some new investors from entering the market from next year.
Do you think there could soon be further intervention by government or regulators to curb lending in the buy-to-let mortgage market?
They will consider meddling with the market, but they are also aware that if they do decide to intervene in the market they will have to be careful to get it right.
There is a fine line between getting it right and getting it wrong, and ultimately the government and regulators want to see properties sold and the buy-to-let market grow.
When do you expect interest rates to rise?
I wouldn’t expect rates to increase before the end of the first quarter of next year because the regulators are in no rush to do it, as they know it’ll have a knock-on effect on the economy. It’s more likely to happen at the back-end of 2016.
Where in the UK would you suggest people currently consider investing in property?
This really does depend on whether an investor is looking for cash flow or capital gains.
Properties up north typically offer higher rental yields, offering greater cash flow, and can be acquired at a lower price and therefore lower deposit.
Properties within the M25, on the other hand, generally generate significantly lower rental returns, and so not great for cash flow, but offer greater potential for capital growth.
What advice do you have for those thinking of acquiring a buy-to-let investment?
If monthly income is what you are looking for, acquire property up north. Demand is particularly strong at the moment for homes in Liverpool and Manchester where it is possible to buy a £70,000 house producing £600-£700 per month in rental income.
Long-term, homes down south – within the M25 – offer greater scope for capital growth, and so ideally investors should try and mix it up by building a property portfolio offering both a good rental return and high investment value in terms of property price growth, which may mean buying properties up north and down south.
Should people consider investing in new build homes?
Yes. New build properties are great as they save time because there are no immediate maintenance issues to worry about and running costs because they are cheaper to run. Some landlords charge more for rent by offering it inclusive of bills.
It is actually worth buying property off-plan because nine times out of ten the value of the unit will rise during the construction period. What’s more, if buying multiple units, investors can typically expect to receive a 5% to 10% discount on the plan price.
Investment in the UK’s student housing market is growing. Is this a sector more people should consider investing in?
Yes. Investing in student accommodation is similar to buying HMOs (Houses in Multiple Occupation) in that you often get a higher return on investment. The main downsides are that the property is usually only let for 9-10 months of year, while there can be higher maintenance involved with managing student tenants.
The truth is that not many student homes come back on to the market, as they provide investors with a good, solid, income return.
As a buy-to-let investor, is it better to opt for an interest-only mortgage or go for repayments?
It is generally a good idea to take out an interest-only deal as most mortgage policies allow for overpayments – 10% within 12 month period – to reduce the capital owed. If opting for a repayment deal, you may get stuck when in need of extra capital because you have committed to higher monthly payments.
What is Commercial Processing Centre’s USP?
With a long-established reputation for quality and service, Commercial Processing Centre (CPC) is a commercial finance packager. We work with a lot of individuals and companies and get a lot of repeat business.
We work primarily with brokers and IFAs, sourcing property-based finance deals from our panel of lenders, packaging the application expertly to ensure the smooth processing through to completion.