Advisers who are approached by their clients about building up a buy-to-let portfolio will want to be armed with as much up-to-date information on both the client’s circumstances and the state of the market in the UK.
In a market such as this, which is changing all the time, it is vital to keep on top of any new policy, regulation or tax guidelines – now more so than ever.
What should advisers know before recommending buy-to-let?
“Advisers need to have a thorough understanding of their customers’ circumstances and financial affairs, particularly whether they are a higher or lower rate tax payer – and if they are a lower rate payer, whether the income from a buy-to-let property could push them into the higher rate bracket,” says John Phillips, group operations director for Spicer Haart and Just Mortgages.
He recommends that potential landlords also get tax advice from a qualified accountant before buying their property.
“In addition to this of course, advisers need to know the market and their products,” Mr Phillips notes. “With criteria changing all the time and getting much more stringent in many cases, advisers need to know which lenders need evidence of income as well as being able to get the rental returns.
"This means they can ensure if their client does want to go ahead with a buy-to-let property, they stand the most chance of being able to get the mortgage they need.”
Advisers will need to ask clients a number of questions and clients should come prepared with the answers when discussing the possibility of establishing a buy-to-let portfolio.
Matthew Bird, independent financial planner at Seer Green Financial Planning, encourages advisers to gain full knowledge of a client’s situation to assess the suitability of a buy-to-let investment.
He suggests the following four questions will help them establish whether buy-to-let investing is suited to their client:
- How exposed are they to buy-to-let already?
- Do they have diversified savings in other asset classes?
- What is their attitude to risk?
- What are their long-term financial goals?
Clearly, there is a level of risk involved with any type of investment and while investing in property is typically able to provide a steady stream of income, potential buy-to-let investors should be made aware of any pitfalls.
As Mr Bird points out, property can be an illiquid asset.
“If you need to raise capital fast, a property sale can be expensive and time consuming so is only suitable for a long-term investment,” he explains.
“Also, buying property gives you a lack of diversity as it puts a lot of eggs in one basket. You could access a property fund via an Isa or pension, offering you far more liquidity and diversification plus any capital gains or income would be paid tax free.”
Keeping up with changes
With a number of changes already taking place within the buy-to-let market and more due this year, advisers should be aware of how these will affect the advice they offer to clients already investing in buy-to-let, or considering doing so.