Let to buy

How is this a viable option?

• Mortgage interest is almost at an all time low
• A continuing shortage of rental property in many areas of the country.
• The doubts which many are having about their ultimate retirement pension and when they will actually be able to afford to retire, has meant that more couples are looking at purchasing a second property as an investment for their retirement.
• If you have a home, which is in an area that has a strong demand for rental property with no reason why this should not continue, then it is worth looking into let to buy.
• It is also important that your property can command a rental, which is attractive, e.g. this is usually on property, which is around the average in price, rather than an expensive property.

How does it work?

• The idea is to change your existing mortgage to an interest only mortgage and to let out the property.
• The rental should more than pay for the mortgage repayments with some spare to cover short periods between lets, say a month to six weeks per annum. With letting agents fees averaging at about 10-15% of the rental price, there may also be enough to pay a letting agent to manage the letting i.e. finding new tenants and collecting rents etc.
• With this set-up you can then draw down some equity on the capital of the let property to provide a deposit on a new house.
• Eventually the price of the original house will rise (hopefully, and has been the case) enough for the property to be sold giving sufficient profit to pay off the mortgage and provide enough capital for a deposit on purchasing a lower priced property to let-out.

Items to remember

• Rents are still rising in many areas of the country particularly on houses.
• Lettable property must have modern equipment and be well decorated.
• Rental income is taxable.
• Capital Gains Tax is payable on the sale of the house which is not ones residence. Capital Gains will only be levied on a sale after it has been let out for three years. CGT is levied at the owner’s highest level of tax, which could be 40%, however if a property were in joint names the annual allowance to set against CGT would be currently £15,600.

Taking all this into consideration, can be a very faesible proposition for increasing your capital over the years in a more secure and speedy way than with many other forms of investment. It is well worth doing your sums and getting some advice from an accountant or financial advisor. So remember what Mark Twain said when asked about the best way to invest for the future "Buy land, young man, they’ve stopped making it!"