Mortgage Clinic: 'Is it a bad time to buy a flat for our daughter?'
Wednesday 07 May 2008
This summer, I had planned to get a £275,000 buy-to-let property in Bristol, where my student daughter and her college friends will live. But I'm confused. House prices are falling, yet I hear that rents are holding up well. Is our plan terribly ill-timed? Obviously, my daughter really wants the plan to go ahead. BF, Manchester
For wealthier parents, a buy-to-let for offspring at university is appealing. While rent from your daughter's friends should cover the mortgage, there's also opportunity for capital growth.
No student worth their salt would let a parent back away easily from such a generous offer, but it's what you want from your investment that really counts.
With prices falling in many parts of the country, whether to go ahead now depends largely on how long you plan to buy for – and if you're in it solely for a swift profit.
"If you're buying for the length of your daughter's degree course, that may prove too short a term to make the investment worthwhile," warns David Hollingworth of broker London & Country. "But if you intend to keep the property longer term and let to students beyond your daughter's stay, then it could still be worth it."
Brokers stress that, like all markets, housing is cyclical. There's a high risk that the going will be tough for some time, but it's likely that – in due course – the "correction" will end and prices will stabilise and rise again.
So, when will those prices rise once more? Your buy-to-let property would need to stay in the market until at least 2013 for you to ride out the rough, says Rob Clifford at broker Mortgageforce: "Think carefully about your objectives – if you're hoping to achieve a certain capital growth during the next couple of years, you'd be better off putting your money into a savings account. Unless you find a bargain property and hold it for five years, avoid buying right now."
Mark Harris at Savills Private Finance suggests 10 years as a guide for a minimum investment term, and warns that loans are increasingly expensive. "Fewer buy-to-let mortgages are available as a result of the credit crunch, and they require bigger deposits – at least 15 per cent and more likely 20 or even 25 per cent, with surplus rent to the mortgage payments," he says. So for your £275,000 property, you'll need a deposit of up to £68,750.
Harris adds that not all lenders will let you rent out to a family member, further restricting choice. On a brighter note, rents look set to remain buoyant thanks to high demand from thwarted first-time buyers and immigration, although areas with over-supply of "off-plan" flats are suffering.
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