UK and Overseas Mortgages: BTL Mortgage Market

Buy to Let Market

PERSONAL finance writer and property owner Neil Simpson offers advice and tips on how to be a successful buy-to-let investor. This week: Is the market overcrowded?

H.D writes: The world of buy-to-let appears to be focused on two-bedroom flats in city centres and I reckon that market is saturated. Would it make sense to look at a different sector? I was thinking of buying a top quality family home that an overseas executive with a family would want if they were to move to Britain. Is there enough demand for this and will mortgage lenders offer big enough loans?

N.S. replies: Rumours of the dearth of tenants for two-bed flats in cities have been greatly exaggerated. But it could pay to plan a little diversity.

The simplest way to gauge the likely interest for big properties is to ask local estate agents - and use a little subterfuge. If you say you are buying and want to know if there are lots of potential tenants likely to rent the property, most agents will probably say that there are to encourage you to sign up and give them a sale.

So, turn it around. Say you represent an executive with a family and ask for a list of empty properties. If the list is long, you'll know it will be a tough market to join - and be prepared for financial challenges.

Most people letting big homes in this sector are former owner-occupiers who may have no mortgage so can cut rents if needed to attract tenants.

But it is possible to borrow money to buy big homes as pure buy-to-let investments. Steve Morgan, Sales & Development manager of Kent-based mortgage broker New Mortgage Finder, says: 'We have arranged loans of more than £500,000 for buy-to-let homes in places such as London, Surrey. And while some lenders have become more nervous lately, these deals are still available.

'Corporate lets can last several years so you get some security. The best way to have a loan approved is to have tenants lined up in principle before you apply.'

Two more warnings. First, top executives will be demanding tenants. Cheap furnishings are not an option, so you must have plenty of cash to keep the house up to scratch. Second, big mortgage bills can trigger big problems if you lose tenants. So do not take on a debt you cannot service out of savings in fallow periods.

Reader's tip of the week

Do not assume that you cannot have a buy-to-let property abroad because you will not be there often enough to look after it or prepare it for new visitors, With property prices in France at some 10% of their UK equivalent. These are the next generation buy to lets, for a growing number of would-be UK landlords.

Nick, Manager for 'The French property shop' in Ashford in Kent. The company is a friendly personal business that finds town & rural homes for people wanting a place overseas.

'A lot of people hope to recoup some of the costs of their properties by letting them for much of the year,' he says. 'You need help in finding someone you can trust to keep your home in good condition. I have someone who looks after our properties and my colleagues and I can usually find similar people for new owners across the western France, It is all about having good local contacts.'

Property in France can be very cheap. A stone house in need of complete renovation near a golf course is on the market for £12,400, according to one property website. Another small house, looking out over the sea from a village location in north west France, is available for £23,000. 22 miles away in Kent this type of property would cost £150-£200,000.

Most people who own property abroad and let it have to declare the income to the Inland Revenue. But as with UK-based buy-to-lets, you can offset the costs of employing people to look after them against your profits to reduce your tax bill.