Investing for growth: An open door for landlords
Sunday 15 November 1998
Malcolm Harrison, spokesman for the scheme, says this has attracted many cautious investors wanting to supplement their PEP, Tessa and pension plans with property investment over the medium and longer term.
Many are buying a property to sell to boost their retirement funds, he says. Others are taking the rental income and leaving the property to their children.
Under the Arla scheme you can borrow up to 80 per cent of the property value, although people typically borrow less. Mr Harrison says the average gross yield from rental is between 10 and 12 per cent before tax and expenses are deducted. However, you can set mortgage interest, letting agents' fees, maintenance costs and insurance against your income tax.
The scheme has attracted those who do not want to get too involved in daily management, as an Arla agent will advise on the type of property to buy, find tenants and manage the letting. However, all this comes at a cost - around 15 per cent of the rent plus VAT. You will still have to fund maintenance costs yourself and take into account periods when the property is empty.
For this reason people buying just one or two properties should not take into account more than half the anticipated rental income when deciding how much they can afford to borrow, says John Heron, managing director of Paragon Mortgages, which lends under the Arla scheme. Other registered lenders include Halifax, Woolwich and Mortgage Direct.
You can buy a property outside the Arla scheme and manage it yourself, by-passing a letting agent who will take a large slice of your rental income. Phillip Cartwright, of mortgage brokers London & Country, says if you have equity in your main residence you can extend the mortgage on that property to secure a better rate. National Counties will let you borrow up to 75 per cent of the value of your home. Some specialist bank accounts, such as the Citibank Personal Reserve, allow clients to draw down money from the account to buy a second property.
Arla scheme members: Halifax Mortgage Services, 0800 525489; Mortgage Express, 0500 111130; Paragon Mortgages, 0800 440099; Woolwich Direct, 0345 454445; Citibank, 0800 004500; London and Country, 0800 373300; National Counties, 01372 744155.
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