Top tips for buying-to-let
The buy-to-let concept was coined by ARLA during the 1990s and has now become a key component in the growth of the UK's Private Rented Sector (PRS).
The PRS is increasingly being used to take the strain of a housing market in which purchasing a property is beyond the means of the majority of first-time buyers. In contrast, the average weighted rental returns for both flats and houses stands at around 5%, which is considerably higher than the savings returns that can be realised through savings or cash ISAs.
ARLA data shows that 71% of landlords believe that renting is becoming increasingly popular, with demand continually outstripping supply. And, the latest English Housing Survey shows that the PRS now accounts for over 15% of housing in the England, yet this is still nowhere near the scale of its European counterparts.
For any budding buy-to-let landlords hoping to enter the sector, ARLA would advise the following:
Research local, background context - this is essential to ensure that you invest your money wisely to increase the likelihood of you receiving that monthly return. Buy-to-let is a solid long-term investment that supports the entire property market, not a quick money making scheme. The rental market does suffer ups and downs, and behaves very differently from region to region, so it's critical that you select the right property in an area you have researched in detail. A local, regulated ARLA letting agent will be able to help you get the information you need.
Make sure you have the right mortgage and the right finance in place - as you'll need a specialist buy-to-let mortgage. Lending grew by around 7% in the buy-to-let sector during 2010, underlining the continued strength of the market, so look around to get the best deal. ARLA agents can advise on the most competitive buy-to-let mortgages in the market, whilst helping you choose a product to suit your individual requirements, or you can visit arlamortgages.co.uk for an open market option tailored to your requirements.
Prepare your documentation - carry out full credit checks on all prospective tenants to assess the risks in accepting the tenancy. You should also check the current and previous employment status of the individual(s), as well as their renting history and any references provided.
In addition, your property must have buildings and contents insurance suitable for letting your property, and also consider insuring against the tenant defaulting. Recent ARLA statistics show that 40% of ARLA members reported an increase in tenants struggling to meet rental payments in the final three months of 2010.
If you use a letting agent, only use a licensed agent - lettings is an unregulated industry, so the only way of ensuring that your agent will follow strict codes of conduct (and that there is a route to redress if they do not) is by checking that they are a member of a reputable organisation like ARLA. Also check that any funds being held by an agent on your behalf are protected under client money protection schemes.
Sign up to Deposit Protection - this has been mandatory for all landlords since April 2007, so worth factoring in to the process. Tenancy Deposit Protection legislation requires all deposits on all Assured Shorthold Tenancies to be protected under a scheme licensed by the Government. For more information, visit the Communities and Local Government website, communities.gov.uk.
ARLA Operations Manager Ian Potter commented: "Buy-to-let properties can prove to be a sensible, long-term investment, but consumers must do their research first in order to achieve success.
"Becoming a buy-to-let landlord is a decision which must not be taken lightly. Landlords must be aware of the legal responsibilities to their tenants and ensure that they use an ARLA Licensed agent so that their money is protected."