Buy to Let and property investing has never been the easiest task in the world – buy over the past few years, many people have made a mint from canny investments. Buy to let is still an attractive investment proposition – in fact, 12% of all new mortgages taken out are said to be buy to lets, compared to just 3% 5 years ago.

However, buy to let and property investing is harder than it was 10, or even 5 years ago. There’s never been more choice – from new builds in the city or country, older styled homes, refurbishing older properties or even property investment clubs – but this wealth of options is often confusing and the reams of advice around is often contradictory. This makes making an informed decision difficult. At a time when house price growth is slowing, and is predicted to all but stop in the next few years, and with banks facing crises over credit and sub-prime mortgage, being aware of all the facts has never been more important.

Deposits
Property is probably one of the largest purchases that you will make in your lifetime therefore thorough research is key. New-build city centre properties may look attractive however many investors have been burnt in the past, losing money not only on the capital but also on the rental income. Because of this problem, many lenders will now not lend on new-build buy-to-lets.

Others require high deposits, sometimes as high as 25% of the purchase price, to ensure that there is equity in the property.

Location, location, location
Location is key to your investment. It is not a good idea to buy a property you have not seen, or in an area that you do not know. It is important to understand the local property market and have a good feel for rental income and property prices in the surrounding area.

It is also important to know your market so that you can tailor your purchase and rental income to accordingly. If you are planning to let with multiple occupants, you must ensure that you have the relevant licence from your local authority. You should also have knowledge about the tenants’ deposit scheme whereby deposits are now not held by the landlord but by an independent government appointed company.

Calculations
Buy to let mortgages are usually calculated on a rental income rather than a traditional mortgage which is based on the applicant’s income and outgoings. Most buy to let properties are on interest only mortgages which means that the anticipated rental income from the property should be more than the (interest only) mortgage payment otherwise a mortgage will not be granted.

In the past, buy to let mortgage lenders have looked for a ratio of 130% – that is, the rental income should exceed the mortgage payment by 30%, however in recent times with rising interest rates and increased house price, lenders generally look for a 100% ratio.

When doing your calculations, it is also important to factor in the costs of setting up the buy to let mortgage – most of which will have higher arrangement fees that a standard mortgage. You should also do some figures which work out how long you can continue paying the mortgage if you cannot find a tenant, and also whether you will be able to cover the mortgage payments if the interest rate rises.

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