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Should you invest in a buy-to-let property?

Landlords are building their cash reserves ready for a return to the market

New stamp duty rules saving homebuyers up to £15,000 have boosted the appeal of buy-to-let investing. Many landlords had abandoned the sector because higher taxes and a stamp duty surcharge on additional properties made the market less attractive.

The chancellor’s stamp duty holiday has brought back some of the shine. Spurred on by the tax break, demand from property investors has risen in all regions as research indicates.

To a large extent, investment in a buy-to-let property depends on the type of investment you’re looking for, and the ultimate goal of your investing activities (i.e. why do you need the money?). Here are some pros and cons of buy-to-let as a way to generate a return.

Advantages of buy-to-let

  • You’ll earn rental income (though possibly less than in previous years). In some areas of the UK, such as Liverpool, Glasgow, and Leicester, rental yield is as high as 8%, while other areas are around the 3% mark.

  • At the same time, you could generate capital growth as your money grows as your property value increases.

  • You can take out insurance to cover against loss of rental income, damage, and legal costs.

Disadvantages of buy-to-let

  • Your tax bill will be higher than it once was, eating into your profits.

  • If you don’t have the right insurance in place, you might not generate an income if the property is unoccupied.

  • If property prices fall, your capital will reduce. And if you have an interest-only mortgage, you’ll need to make up for any shortfall if the property sells for less than you bought it for.

  • You’ll need to factor in the costs of stamp duty, insurance, and wear & tear.

  • Being a landlord is a big responsibility. Check out our tips before deciding.

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