Investment Guide

What are 'buy-to-let' investments?

Buy to rent, or buy to let, is a type of medium to long term investment, wherein an individual buys a property with the sole intention of renting it out to tenants. Buy to let investments are often seen as a good investment, as not only will you receive immediate returns through rental income, but also capital gains appreciation.

Buy to let can either be done with the primary property market or the secondary market. The primary market generally consists of new build projects, or off-plan, where an investor purchases a property that is in the process of being built. In both of these cases, the buyer will be the first owners of the property.

Buying from the primary market can have certain advantages. For starters, with them being new properties, no renovation is needed. Off-plan properties are often priced slightly cheaper, or at market value, which means they make an attractive investment, with these properties generally seeing greater capital appreciation. At Betterhomes, we have a mix of primary market properties, both off-plan and ready to move in. The advantages of primary market properties that are ready to move in are that investors can see a return on investment immediately through a rental income.

Alternatively, an individual may choose to invest in the secondary property market. These are properties that have had a previous owner and are usually situated in mature locations and established residential areas.

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Your Questions Answered

1. What are buy-to-let mortgages?

When securing financing for a buy to let property, it is crucial to understand that these types of mortgages differ from residential mortgages. Residential mortgages are more heavily regulated to help ensure that the borrower does not lose their home. Residential mortgages come with regulatory protections designed to minimise the risks of borrowers losing their home.

Banks view buy to let mortgages, on the other hand, as a business transaction since the mortgage will not be secured to the borrower's home. Generally speaking, the amount that a bank is willing to lend depends on the rental income that the property will generate. As such, buy-to-let mortgages are often interest-only, as landlords typically end up selling the property as their repayment plan.

2. What is the ROI for these investments?

The ROI differs depending on several factors. These factors include the location, the property type, the investment amount, and whether or not a bank finances the investment, and if so, how much of it is financed.

That being said, while you will find varying rental yields depending on the market, here at Betterhomes UK, we focus on over-performing, typically ranging from 5% to 8% and more. Don't forget to bear in mind that these yields have the potential to also increase over time.

3. What are the cities in the UK for buy-to-rent investments?

The UK property market is seen as a highly attractive investment opportunity, with many cities offering a lot of potential for high rental returns and capital gain. We focus on specific hotspots throughout the UK that have a strong market and good potential for growth. This includes Northern cities in the UK such as Liverpool, which has been named as the best city in the UK to invest in, Birmingham, and Manchester, as well as various areas within London's commuter belt.

Whilst we target healthy markets, the property prices and the average rental yields vary depending on location. As such, the rental income from one of our properties in Birmingham will likely be different from the income from one of the Liverpool properties. This is an important consideration that should be taken into account before deciding on your investment.

Investment Guide