Many people now see property as a realistic alternative to pensions and are switching money into bricks and mortar. Low interest rates and booming house prices have helped. Although no one can predict where the buy to let market is going, it makes good sense to know and understand what the risks are before committing into any financial venture. The supply of rental properties is now outstripping the number of potential tenants and rents have come down from their peak of around 10% of the property’s value to around 6% on an average therefore you must be selective in location.
The biggest risk of buy-to-let is not finding any suitable tenants. As a precaution, you should allow for a void period of between six and eight weeks a year when there will be no rent.
Another concern is the potential for house prices to fall in the short term. Buy-to let mortgages tend to be interest only, which means that none of the capital borrowed is paid off during the term of the mortgage. There is a risk of negative equity if the property has to be sold during a period of falling prices however investments should be mid to long term providing you don’t have excessive rental voids the market will improve. |
