Investing in property
Most people think it is far cheaper to rent than buy. However, according to a new survey by Zoopla, buying a home is cheaper per month in 74% of locations around the UK. This is great news for investors, as buying a property then renting it out at a profit is becoming more doable.
Average monthly mortgage repayments are 8% lower than the cost of renting in almost three quarters of locations when based on an interest-only mortgage at 5%. What’s more, these attractive interest-only mortgages are on the wane for first time buyers, but are still widely available for buy-to-let investors.
Also, because of the large number of home repossessions in 2008/09, there are more properties going to auction, so even greater opportunities for buy-to-let investors to make money.
Some of the most profitable locations are some of the easiest places to rent too, with high turnover and strong demand. The list includes London, where the average rent for a two-bed flat is £2,155 per month, but a mortgage at 5% is £1,859 per month. Birmingham, Cambridge, Nottingham, York and Norwich also scored highly.
Places investors should avoid, because renting is more cost effective than buying are Brighton – quite surprisingly – Bournemouth, Bristol, Cardiff, Plymouth and Edinburgh.
However, investors should note, that this is based on the current 0.5% interest rate. If the Bank of England increases to 1%, which is possible before the year is out due to rising inflationary pressures, renting would become more cost effective in 80% of British locations. So, if you are planning on buying-to-let then you probably should consider a fixed rate loan, and get on with now, whilst it is still a buyers market.
Which also means, it’s a landlords market. According to Countrywide, up to nine tenants are competing for every property.
However, before you dive in at the deep end, remember that if the interest rate does go up, you will make less profit. You can either put rents up, which with high demand is perfectly feasible, but if this is not possible, you may need some savings to tide you over until you can increase the rent in line with inflation.
Low interest rates means saving is hard, however, there are still some accounts out there that represent good value for money, the best being a cash ISA. You can now invest £5,100 each tax year completely tax free in a cash ISA account. Check out Santander for a range of savings accounts.
