Does buy-to-let still make sense as an investment?

a woman signs a purchase...

Property sales figures have shown that there was a sharp spike in the number of buy-to-let landlords selling up before the recent General Election – with sales up more than a third compared to normal. And the stampede out of the sector was biggest in London, where some areas saw the number of buy-to-let homes being sold double in the month of April. So was it just pre-election jitters or is the smart money going elsewhere for good now?

Has the market settled now?
It's too soon after the election to tell for sure, but it is thought that Labour's plans to introduce more rules to help those renting houses may have been a worry for many buy-to-let investors. The new Conservative majority government has no plans to introduce rent caps on private rented properties.

Regional variations
There's no doubt that the overheated London market is where the highest sale prices and the highest rents are found, but data suggests the capital doesn't always offer the best return on investment. Using annual figures from Zoopla, LendInvest has put together a "buy-to-let index" which reveals which areas of the UK have the best yield.

The national average yield for a one-bed property is between four per cent and 5.9 per cent, depending on the number of bedrooms. But some areas get significantly higher returns – and four of the highest-yielding postcodes in the UK are in Birmingham. There was an average yield of 13.6 per cent in B44, 11.9 per cent in B42, 10.5 per cent in B98 and 9.1 per cent in B23. Other high-yielding areas of the country include Ipswich, Liverpool and Glasgow. But Central and North London were still right up there in terms of overall return-on-investment thanks to the large capital gains caused by the overheated property market.

Mortgage matters
Buy-to-let mortgages usually require a hefty deposit, often as much as 25 per cent or more. There are also sizeable fees to pay on many. Lenders will typically look for rent that covers 125 per cent of the mortgage repayments – which isn't as hard as it sounds because most buy-to-let mortgages are interest only. However, you need to be confident that you can cope with a drop in property prices and tough it out for the long-term rather than hoping to get rich quick. Be thorough with the sums and take care to factor in possible interest rate rises.

Know your responsibilities
It's not just about getting a contract signed and sitting back to watch the money roll in, you need to do your job as a landlord too. That means getting an Energy Performance Certificate (EPC) for the property and ensuring that the gas and electrical appliances have been installed correctly and are safe for your tenants. A fire safety certificate will also be required.

You'll need to protect any deposit in a government-backed tenancy deposit protection scheme (TDP). As landlord, you'll be responsible for most repairs to the outside of the property – including the roof, chimneys, walls, guttering and drains. If an item provided by yourself inside the house breaks through wear and tear then you'll also probably be expected to pick up the bill.

Consider your liabilities
Many landlords choose to take out specialist insurance policies targeted at the buy-to-let market. These can cover you for buildings and contents as usual – plus household emergencies and even non-payment of rent by tenants. Check the policy details carefully of course. Background checks on tenants can pay dividends if you're worried about being landed with a problem tenant. These vary in depth and price, so it's worth looking at what you get from each offering.

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Buy-to-Let Mortgages