Property TV | Property Question Time – Ep 142 – Understanding the Buy-To-Let Market
Lucia France: So, “I want to understand the buy-to-let market. What is involved in being a landlord?” This is quite a big question. “Can you please advise me on the following topics: buy-to-let deposit and mortgage requirement, letting agents fees, and contract on what task-letting agent will do, EPC and safety inspections, tenancy deposits, cleaning, maintenance, and anything else I’ve missed out on.” So, if we’ve got time.
Paul Mahoney: Yeah, I … We need a bit more than a few minutes on that one. I’ll give a general overview. The first point was mortgages and deposits. The average maximum, if you like, for a buy-to-let mortgage is 75%. The reason I say average maximum is, that’s where you can go to without rates rising substantially. Some lenders will go 85, but the rates are significantly higher.
Lucia France: Okay.
Paul Mahoney: So that’s generally where people go to. 75%, ’cause obviously it makes sense to leverage, especially in the current market, when money’s cheap. So that would mean, if it’s a hundred-grand property, they’d need a £25,000 deposit, plus costs. So that hopefully covers that one.
Lucia France: Yeah, that’s it.
Paul Mahoney: Their ability for a mortgage will partially depend on their financial position, whether they currently own a home or buy-to-lets. Seems like they’d be a first-time landlord. If they don’t already own a home, then they’d be a first-time buyer, as well, and that does rule some lenders out, and it would be more about their financial position. If they own a home, then it becomes less about their financial position. Slightly. Because they’ve got a bit more security. And buy-to-let lenders do tend to be more flexible than residential lenders.
What was the second point?
Lucia France: Then we had letting agent fees.
Paul Mahoney: Okay. Letting agent fees differ depending on the location, mostly. Some of them in London are exorbitant. Up to 20%, which is … I just think is ridiculous, but people pay it. But generally, you’ll find outside of London, you’re looking at 8-10%. They said so far as what the letting agent will do, that there is both … There’s letting and management, or just lettings, or just management. Lettings meaning they find the tenant and sign them up, management means they manage the property and look after maintenance and things like that as well. Hopefully that covers that one off. It would depend on where they’re looking to buy, so far as what a cost-effective agent is. Some charge a lot more, but probably … In some cases, do a better job than the ones that charge much less.
Lucia France: And would you recommend getting a letting agent who does the management and everything as well? As a general rule?
Paul Mahoney: Depends on their situation, and whether it’s required. Generally, we recommend it as a good option to have full lettings and management in place if they don’t want to be going to the property all the time. So that’s … Yeah. If … Depends on how involved they want to be.
Lucia France: Okay, and then we had EPC/safety inspections.
Paul Mahoney: Yep. So, that … EPC meaning the energy ratings and safety inspections. EPC would need to be done on a yearly basis. Generally, you can get guidance on that from the local council, on what’s needed and who can do that for you. It’s generally fairly cheap to do it. But they’re really getting down into the nitty-gritty of actually owning the property. I’d say probably before starting to think about things like EPCs and safety checks is, where are they going to buy? How much money do they have? What’s their goal? What’s their strategy? Focus more on the goals, rather than the product, I would say.
Lucia France: [inaudible 00:04:13].
Paul Mahoney: Really focus more on what they’re looking to achieve from buy-to-let, and what’s their investment or financial goal? Rather than, “how much is the safety check gonna cost me?”
Lucia France: Exactly. Well, we’ve got cleaning and maintenance here. I think that’s about … Was under that bracket.
Paul Mahoney: Falls under the same basket, I think.
Lucia France: Anything else they’ve missed out on? Is their final question. Is there any other piece of [crosstalk 00:04:32]?
Paul Mahoney: I’d say just that … The main thing I would say is that they’ve missed out on, is the strategy side of things. Investing in property should be a business. It should be about achieving financial goals, not just wanting to own a buy-to-let so you can talk about it at dinner parties. So, focusing more on what the goals are, what the strategy is, how they can achieve that, and then finding the right assets to fit in with that, and then they can look at things like what the costs are going to be for that particular asset.
Lucia France: That’s great, thanks very much, Paul.