It's 10 years exactly since funds were released on completion of the UKs first buy to let mortgage. We thought we'd use the anniversary as an opportunity to take stock and look at what has been a phenomenal success story for many a contractor who had harboured ambitions of becoming a property tycoon.
Traditionally those exit plans revolved almost exclusively around the equity markets and it was relatively rare for a contractor to own property other than the roof over his or her own head. It had not always been so however and until the 1970's there had been a vibrant private landlord sector in this country, largely made up of ordinary middle income investors.
With these new mortgage products, novice rental investors could raise finance to fund multiple purchases. The deposits required and interest rates paid were now far lower and by avoiding commercial funding, investors also side-stepped many of the hefty arrangement fees that the banks had previously been able to charge.
The Millionaire Contractor
Those who were quick to realise the potential of this readily available source of cheap finance snapped up property before prices soared and these original clients have been joined by massed ranks who have continued to prosper as fresh opportunities have arisen. Often the initial deposit on the first purchase has been raised by releasing capital from the existing home at low cost via a remortgage. Over the years we have helped numerous contractor clients become millionaires, some from a very low starting level of wealth. The majority of these millionaire landlords have stopped contracting to concentrate solely on what has become a business in its own right. Others continue to contract but very much on their own terms.
The key to successful investing
The key to investing is invariably to buy at a discount, in an up and coming area and to add initial value if at all possible by modernising. Rental yields must be comfortably in excess of mortgage repayments to avoid eating into profits but as ever more competitive mortgage rates come onto the market it is relatively easy to ensure that you can keep ahead of the game in this respect.
Many investors also take advantage of fixed rate schemes to secure their repayments ahead of expected interest rate hikes and unlike residential property ownership, which has not enjoyed tax breaks since the demise of MIRAS in the 1980s, the taxman is uncharacteristically generous in allowing you to offset these interest payments against your income tax on rentals.
The future for the rental market
Demographics point to a profitable long-term future for the buy to let investor. Massive immigration from Eastern Europe, changing lifestyles and an ageing population have all been instrumental in ensuring that the expected slowdown in property price inflation has not happened. The Nationwide Building Society index of house prices is showing an annual rate of growth at 8.2% which equates to a rise of £13000 in the value of the average house over the past 12 months. The rise in prices is ,in itself, powering the rental market as first time buyers accept that they must rent for longer whilst saving for the deposit on their new home.
Its therefore highly probable that the next potential Millionaire investor is already hatching his or her plans for a profitable future in buy to let.
