“Buying to Let” (Part One) As pension funds shrink, many people are considering buy-to-let as a viable alternative, and with good reason. The effect of relatively low interest rates and a historically rising property market make buy-to-let one of the most attractive investments accessible to the public. And the great thing is – you can use the bank’s money! The average national annual return is over 5%* excluding capital growth – which has always risen strongly over the longer term. (Such an investment was never designed to be a short term “fix”!) The principle is this: The compounding aspect of the value of the property coupled with increasing rental returns far outstrip any inflation in running costs in the medium to long term. Your annually rising rental income should more than cover your mortgage payments in the long term, because repayments do not compound in the same way, although fluctuations in the rate of interest over the term should be expected. In principle your surplus rental income should eventually pay off your mortgage, providing you with a regular “retirement” income whilst keeping your equity intact, and hopefully rising. Bear in mind that if you do choose to pay off your mortgage early, the whole of the rental income may be taxable. Some people purchase another property when they reach the point of surplus and build a viable property portfolio. Capital Gains Tax may also be payable on any sale of a buy to let property and we would always suggest you seek the advice of an accountant before purchasing a buy-to-let property. Please feel free to call us for a chat if you would like to investigate buy-to-let opportunities in this area. Our next article will consider some of the practical aspects of buying a property to let. * Source: Association of Residential Letting Agents (ARLA)
Posted on: Mon, 24 Nov 2014 09:14:52 +0000