For Buy to Let market, the last few months have been difficult for the landlords with the credit crunch came increase on arrears, lack of buy to let mortgages and tougher lender’s criteria. But it is not all bad news, the houses are cheaper to buy, the rents still increasing and rental demand at all time high.

Credit Crunch

Last year, we started to see the effects of too much borrowing and declining in house prices in USA. One year later, economies throughout the world started to collapse, financial institutions going into administration, Governments in the verge of bankruptcy, mortgage lending at very low levels, UK house prices coming down and a global recession.

It’s all bad news, no! The buy to let market is stronger than ever with the demand for rental properties being higher than ever, due to first time buyers not moving into the ladder and immigration from east European countries.

Within a dreadful situation, we can always find good opportunities.

2009 New Year, New Hopes!

It will be into 2009 that we shall see some improvement on the lending, specially buy to let mortgages.

It’s been predicted the houses prices will still coming down but at much lower pace and probably in 2010 they may start coming up.

For the landlords it’s a time to consolidate and review their portfolio with great opportunities to invest if you are in strong position.

Buy to let Market

Between 2004 and 2006 the buy to let boomed, due to easily accessible buy to let mortgages and property prices growth. Now the buy to let mortgage diminish, tougher lenders’ criteria, specially rental cover, and house prices are coming down. 

Buy-to-let is no longer sizzling and many investors that started being a landlord in recent years are struggling as mortgage rates rise. Many could not change mortgages due to low or negative equity, so when the initial rate deal came to an end and they started to pay the Standard Variable rate of the Lender,  the rent was not enough to cover the mortgage payments.

Within the most affected are those investors who bought properties at a suppose discount to sale straight away, looking for short term investment but when properties prices started to come down and the houses taking longer to sale, they run to serious problems.

The golden rule of buy to let investment is to look as a long-term investment, taking seriously. If the landlords invest wisely, look at long term, do the homework and stick to the tried and tested method of investing for rental returns rather than capital growth, they will be successful. Otherwise, the investor will probably run into serious problems.

Buy to let investment does not guaranteed success as any other investment but doing it well and it can be an excellent piggy bank for retirement.

I am leaving now some tips for all professional or first time landlords:

Do your homework

If you are a first time landlord look at pitfalls before you look at the benefits, buy to let investments are time consuming, therefore think if it is the right time to invest in buy to let or leave the money on a good savings account.

If you are already a seasoned landlord, do not stretch yourself, look first to consolidate and add strength to your portfolio, as if you are in stronger position your next investment  will run smoothly.

Location, Location, Location

It pays to choose carefully where your next buy to let property will be. This does not mean to buy on a cheaper or expensive location but rather the rental demand in the area. Look for clues like if is near a University or Hospital, very trendy area for professionals, excellent amenities and links, etc.  Avoid all cost areas with oversupply of properties to let, look at properties and letting agents’ websites and if a certain area has numerous properties to let, think if you want that kind of competition as you may have to negotiate the rent down to let the property.
Look at the figures

Before you buy, take a look at several properties, writing down the ones are of your interest. Look at the rental yields on them, see if the rental income covers at least 125% of the mortgage payments and if worth to spend around 25% on a deposit, this will help you to secure finance and a good rental yield.  Many lenders restricted the Loan to values to 75% or less and rental cover to 120%-125%, you can still arrange products with less rental cover but think if you want to restrict your rental yield.

Your target tenant

Think who will be your tenant and imagine in his shoes? If you are student you like a place to be comfortable and clean, links to university, nothing luxurious. If you are a professional you will be looking at a modern and stylish interior but nothing too pretentious, and excellent links. If it is for a family rental, do not put any furniture in, leave as a blank canvas, normally over the years the family has a few belongings they want to take to the next property.

Look into your portfolio

Review your portfolio, see if the initial rate deals in any of the mortgaged properties ended and compare the rate you are or will be paying with the rates currently in the market. If you are better off with the lender’s Standard Variable rate, does not mean you stop looking for a better deal. Try to look once a month for new rates or ask to your adviser to keep an eye on the products.

See if there is any opportunity within your portfolio to get a higher rental income. Why not transform a house with 3 bedrooms, 1 dining and 1 living room into a 4 bedroom house with living/dining room; make a loft conversion/extension to get 1 or 2 more bedrooms; renting by the room, as by the room the rental income is normally higher (but must be on right area). The possibilities are immense to add value to your portfolio and increase your rental income without spending as much money as buying another property. 

Look at other areas

Most Landlords invest where they live but most of the good opportunities are normally in other areas.  Do not be afraid, as if you follow the golden rule, can be very time consuming investing areas away but can be worthwhile.

Ask for a discount

When you buy an investment property, you must not forget you enjoy the same benefits of a First time buyer – No chains, so you can move quickly.  If you do not ask for a discount you will not have it.

Avoid Tenancy pitfalls

Put aside at least 2 months of rent, in case when your tenant move out or when you just bought a property  will help towards the mortgage payments until you find a tenant.

Worth paying for a complete tenant check report, where the provider will get you a credit file of the prospective tenants, check their ID, get the references and they are not expensive.  It is not guaranteed you will be good tenants but helps a lot.  Also, you should consider a rent guaranteed insurance, where can cover for rent arrears, pay towards the legal costs to evict the tenants and damage made on the property. With this type of insurance you may request a lower deposit from the tenants to match the excess of the insurance, that may help to secure a tenancy quicker.  

Shop around

Shop around for letting agents, ask a discount to traders: plumbers, furniture. The more you save the higher will be the return from the investment.

G M

Buy to let mortgages

Buy to let rates

Parents still spending on kids – despite credit crunch

Households across the UK may be tightening their belts as the credit crunch begins to bite and rising prices hit the family purse strings, but parents are still prepared to splash the cash on the kids.

That’s the view of one of the UK’s leading retailers of children’s furniture, which is experiencing a double digit sales growth in 2008, at a time when other retailers are bearing the brunt of the downturn in consumer spending.

Aspace, an online children’s furniture store, is bucking the trend in retail and puts its fortunes down to the fact that it sells products for children rather than being a furniture retailer.

It may only seem to be a case of semantics but there is a massive gulf between the two, according to managing director, Paul Cunningham.

“As a business we have kept a very close eye on factors which are having an impact on market sector, as well as the wider economy, and it is clear that there is a huge difference between the purchase motives for the different types of furniture,” he said.

“We have studied the data and the main conclusion that we have drawn is that parents will, within reason, cut back on a number of purchases but not ones which affect their children. The idea is not as crazy as it first seems because all our research and data points to the fact that parents would much rather forego a new sofa, bedroom furniture or a dining room suite because they are prepared to make do with what they’ve got in favour of spending the money on their children.

“In those terms, there is a certain logic to the argument which does help to explain why aspaceuk.com is seeing business growth this year.”

Cunningham believes that his company’s current trading situation fits into a widely accepted business wisdom which says that there is a natural sequence in which retailers begin to suffer at times of economic downturn.

According to such wisdom, it is believed that furniture retailers are the first to be hit. Then it’s men’s fashion followed by women’s. And only then, when a recession kicks in, does spending on children and food begin to drop away.

A number of leading business figures have alluded to this cycle recently, said Cunningham, and he is convinced that his company is seeing this effect at first hand.

“It has been gratifying to see business leaders confirming what we are seeing in our business,” he said.

“And given the fact that things are slowing down, this often presents its own opportunities. Just look at the housing market for example. Whilst the housing market is a nightmare for the poor souls who need to buy or sell at the moment, the rising number of ‘stay-put homeowners’ is stimulating a number of different markets, including ours.

“Rather than losing thousands on the property market, many homeowners are opting to ride out the storm and stay where they are. And because they are staying put, they are spending a few pounds on their home to spruce it up. They might choose to make cosmetic changes in areas such as kitchens or living rooms but in areas like children’s bedrooms they are tending to go for a more significant overhaul including new furniture.”

As well as the rise in stay-put homeowners, Aspace points to another factor which is helping his business: the poor supply of quality children’s furniture and trading up. Poor supply was the whole reason we started the business,” said Cunningham. “We spotted a big gap in the market for better quality products.

“Yes of course the likes of B&Q and IKEA make very good products which are pitched perfectly in terms of price and the market they are aiming for. But they don’t go above and beyond that. Until we came along there was no one who was offering better quality furniture.

“We have exploited the niche to great effect in recent years because there is growing demand for better quality products. And as a result of offering a better choice of quality products we have seen an increase in households trading up from the perfectly adequate furniture from the big retailers to something better from us.”

All these factors could go some way to indicate that parents are pampering their children like never before, but Cunningham is quick to point out that it more likely reflects parents’ well placed intention to do their best by their children.

“There is probably an element of parents wanting their child to have all the opportunities in life that maybe they didn’t have and the physical environment in which they live – especially their bedrooms – does go a long way to helping achieve that.

“After all, a recession won’t last forever but this part of a parent’s journey with their child will never come around again.”