Is Investing in Property a Good Idea in the Current Climate?

In a climate of volatile stock markets and low rates of return offered on many savings and investment options, investing in property through a buy-to-let mortgage arrangement may look like an enticing prospect to the investor.

For those able to raise a large enough deposit, a buy-to-let property can have the potential to generate a good rate of return, especially while mortgage interest rates remain relatively low. Nevertheless, there may be significant risks involved in property investment and there are several things that you should consider before you leap in headfirst.

Many lenders now require a minimum of 25% as a deposit before you will be considered for a buy-to-let mortgage, and rates will often be above those offered on conventional domestic mortgage arrangements. While this can make it seem a relatively expensive investment opportunity from the outset, it’s important to remember that the higher the deposit you can pay, the less interest you will pay, so raising that extra bit of capital may prove cost-effective in the long run.

Number-crunching is vitally important if you are considering investing in a buy-to-let property, particularly in today’s market where ready cash is not often in easy supply. It’s a good idea to start by developing a careful financial strategy and asking yourself questions such as:

• Will the rent you are likely to receive cover the mortgage repayments?
• How would you manage financially if the property stood empty for a month or more?
• Though mortgage interest rates are currently at a relatively low level, would you be able to cope if they were to rise?
• Have you taken into consideration all the costs involved in acquiring and owning a buy-to-let property, including taxes, lenders fees, and other costs associated with being a landlord such as property maintenance and insurance?
• Will you engage an agency to deal with the practicalities of letting your property, or will you be able to invest the time and energy required to take on responsibilities such as viewings?
• Is your chosen property in a desirable location? Choosing a location where people would be likely to want to live does not necessarily mean looking for the cheapest or most expensive possible area, but it is worth thinking about the quality of local transport links, and schools in the area.

You may want to speak to an impartial mortgage advisor who can help guide you through your options when it comes to obtaining a suitable mortgage.

Property prices can drop, and you may not get back everything that you put in so you should consider all of your options carefully and compare the risks and benefits with those associated with other types of investment. A detailed financial plan can help you decide whether investing in property is the right choice for you according to your individual circumstances.

Investing in property can be both exciting and challenging; by doing the groundwork early on you can improve your chances of building a successful investment even in today’s uncertain climate.