Things to consider when buying a property to lease

A guide to purchasing buy-to-let property

After feeling the financial squeeze of the last few years, property investors are loosening their belts and beginning to breathe more easily.

Average monthly rents are now rising steadily and a shortage of homes, coupled with high demand from first time buyers struggling to stump up big deposits, has given even the novice property speculator an appetite for buy-to-let.

Even so, this is not a market to be entered into lightly. There are practical, financial and legal issues to consider first. Make sure you know the risks as well as the benefits.

Choose a promising area and pick your target market – families, students or commuters for example. Think about looking further afield than the town in which you live – the market may be rising and your investment more secure.

Be wary of the pitfalls such as the cost of maintenance or how you will meet mortgage repayments if the property lies un-let for a period of time.

Understand the rules for borrowing for a buy-to-let home. Loans are based predominantly on the rent-to-interest (RTI) ratio. This is the proportion of rent the property can generate versus the interest payments on the mortgage.

Prospective landlords must also come up with the relevant deposit. If you need advice, consider using a specialist buy-to-let mortgage broker.

Once you’ve secured your property and the tenants are in, you will need to protect your investment.

Even if you let just one property, you must ensure the correct landlords insurance cover is in place because standard home insurance policies will not provide the necessary protection. Most landlord building insurance policies include public liability and loss of rent cover as standard.

But it is possible to take out a separate insurance policy against your tenant failing to pay the rent, usually known as rent guarantee insurance. This generally costs little, and is available as a standalone product from a specialist provider.

Some UK let property insurance policies also include a basic level of legal expenses.

Landlords renting out furnished properties will also need a landlord’s contents insurance policy. And those with a portfolio of rental properties will need flexible buy-to-let insurance protecting them for commercial or residential rentals or when their property is vacant.

In addition, landlords have a responsibility to ensure the appropriate gas and electricity certificates and checks are in place as well as adhering to fire and safety regulations.

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