Buy To Let in Leicester: Everything You Need To Know in 2018
1st January 2018
Staggeringly low savings rates and the uncertainty of many traditional investments such as stocks and shares or bonds, buy to let is looking more and more appealing. Even with the new tax rules (Section 24 landlord tax change) which state "No relief will be available for capital repayments of a mortgage or loan" which, over time, will prevent individual landlords from writing off mortgage payments on their second properties as a business expense; this is being worked around by property investors forming limited liability companies instead of operating as sole traders. Property always has an appeal because it is more tangible than stocks and shares, it's property seems to rise constantly and recover well from any bumps in the road and like any market, it is driven by supply and demand and of course, the supply of land in England is quickly running out which will, unsurprisingly, be a key driver of house prices for years to come. However, the rate of house prices across England is slowing, in part due to the big goals of increasing the supply of new homes by 40% announced in the 2017 Autumn budget.
Property prices in Leicester, however, are rising and are unperturbed by what is going on in the housing market throughout the rest of the country. Overall sold prices in Leicester over the last year were 4% up on the previous year and 18% up since 2014, this is in line with the rest of the country with the exception being that Leicester has benefitted from a steady increase of, on average, 4% year on year since 2014 whereas around the country, they have benefited from sudden property price spikes which, in 2018, is expected to come to a juddering halt with an increase in value of between 1% and 3% if they're lucky. Leicester, on the other hand, will continue to rise steadily. The graph below shows us how the UK property prices seem to always be above the prices in Leicester but as mentioned, whilst the property values elsewhere in the UK grind to a half, Leicester still has a long way to go before it sees a slow down in the speed in which values are rising.
Of course, investing in property is a long-term investment, unlike Stocks and Shares which can be sold at a whim, or savings which can be withdrawn instantly and spent; when your money is tied up in property, it is important to realise that getting that money back at short notice will be extremely costly (especially, if you use the services of companies like WeBuyAnyHouse.com who will give you a quick sale but at a fraction of the actual property value). However, buy to let might be right for you if;
- Prefer investments that feel more tangible than stocks and shares.
- Are willing to tie up your money for a long period of time.
- Understand property prices can go down as well as up.
- Are willing to take the risk that you might not earn a profit on your investment.
- Understand and accept the additional risks that go along with borrowing money to buy a property.
- Understand and accept the costs and time involved in owning and running a property and the impact that this will have on your potential return.
If this sounds like you, great. If not but you wish it did, get in touch and we'll be able to help.
So, what is a buy-to-let? I mean, neither of us are daft and we can deduce that buy-to-let means "buy a property to let it out" but how is it different to owning my own home and just letting that out?
Well, it starts with what your intention is with the property. Usually, your first house purchase is one which is for you to live in. Should you later choose to let this out, you can do so provided you get permission from your lender where required (not doing so could invalidate your mortgage and the lender may legally ask you to repay the amount owed in full immediately, failure to do so could ultimately find your home repossessed). It isn't usually an issue when it comes to letting out your own home; many people will let out their home if they find a new partner and move in with them. However, a buy-to-let property differs in the sense that you simply do not intend to live in the property and the lending products available are tailored specifically to buy-to-let properties, including buy-to-let mortgages.
Before we go any further, let's just give ourselves a quick reminder about the risks involved with any investment. The value of your investments can fall as well as rise, it is your responsibility to weigh up these risks and bear in mind, with property, your home may be reposessed if you fail to keep up with mortgage payments, likewise, should the value of the property fall and you owe the lender more than the property is worth (known as "being in negative equity"), you may be unable to afford to sell the property which can bring with it it's own pitfalls, especially if you cannot afford to keep up with the mortgage repayments - in these circumstances where you are forced to sell the property, the lender will expect repayment of the rest of the monies owed. Two other importance considerations are; If the property is empty and no rental income is being received, mortgage payments must still be paid on time and in full; and, usually tenants are responsible for council tax unless the property is empty or the tenants are living in the property for a term of fewer than 6 months, in which case you are responsible for paying any council tax.
Moving on, when you buy your buy to let property, there are two main sources of profit available to you; Rental Yield and Capital Growth.
|Rental Yield||Capital Growth|
|What your tenant(s) pay in rent, minus any maintenance and running costs, like repairs and agents fees. Often shown as a percentage of the property value.||The profit earned if you sell your property for more than you paid for it.|
There are many areas of Leicester that are worth looking into, there are the tried and tested favourites of Narborough Road and Clarendon Park which are popular amongst students due to their fantastic links to the city centre, universities and colleges throughout Leicester, however, yields in these areas are below 5% currently because of higher purchase prices. Alternatively, there is Belgrave which is fantastic for working professionals who need to commute into the city centre or to the train station (in the city or in Syston), it is also a popular area for families because of the transport links and local schools and plentiful amounts of children's play areas and extra-curricular activities. House prices in Belgrave remain more affordable than many other parts of the city and certainly beat the value of homes of a similar size in cities like Birmingham and Nottingham.
Leicester is also the biggest economy in the East Midlands which is another key driver of professionals moving into the city which makes Belgrave even more appealing.
As we near the end of the article, it's important to bear in mind other costs associated with Buy-To-Let investments including the fact that purchasing a second property now attracts additional stamp duty, so when making an offer on any property it is crucial you factor in the following:
- Survey fees.
- Solicitors fees including searches, etc.
- Stamp duty.
- Any improvement costs.
In summary, Buy to Let investments are a fantastic way forward, in our opinion but they don't come without their risks. However, by choosing a Buy to Let deal in Leicester, you won't go far wrong. Especially with all the latest upcoming property developments, more on this later.