The buy to let business: difficult but profitable

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Mortgage-Agreement

Recent government changes have made it more expensive and more difficult to run a buy to let business.

However, buy to let property still be hugely profitable.

The government has increased stamp duty, plus there have been cuts to tax relief on commercial mortgage interest payments. New affordability rules have made it more difficult for portfolio landlords with four or more mortgaged properties to find new mortgages. In response to this, some landlords have sold property. According to data from the Ministry of Housing, Communities and Local Government, around 4,000 buy to let properties are being sold each month.

Consumer organisation Which? has advised its members that buy to let property investing can still make a good profit if it is done correctly. Before purchasing property, they advise potential investors to look at the balance between property costs, rental yields and capital growth. Cheap property may have the potential for capital growth but could be in an area where rents are not high enough to cover mortgage repayments, maintenance and administration costs. Rents can be higher on expensive but newer properties.

Which? says the choice of property type should be guided by the typical tenant in the location. Millennials want furnished modern property, whilst young families prefer unfurnished houses.

To finance property purchases there are many specialist lenders offering commercial buy to let mortgages. If property needs refurbishing, bridging loans are available. A mortgage broker can advise landlords on their best available finance options.

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