PAUL LEWIS: Well, with us is Andrew Reeves, or ‘Mr Buy-to-Let’ as some call him. Andrew, did you really start all this?
REEVES: Well, I launched the scheme on behalf of ARLA – the Association of Residential Letting Agents – back in 1996. But we had been successfully investing for clients for some 7 years before that, so we did know how it worked and we knew a lot of the complications that would have to be overcome.
LEWIS: It used to be very difficult didn’t it, because a mortgage lender wouldn’t lend you money if you weren’t going to live in the house yourself?
REEVES: That’s correct. I think the main single achievement of the scheme has been to bring interest rates down akin to the home loan rate rather than having to pay a commercial mortgage rate.
LEWIS: So what sort of interest rates can you get if you want to buy to let – as you say. Is it comparable to what you can buy your own home with?
REEVES: Yes they are – at the moment there are some very keen rates on offer – discounted rates for example of 3.75% for one year, 5.99% for 3 years and 6.35 for 5 years, so the investor can set his financial costs at the outset and know that he’s not going to be caught out by a rise in rates in the short to medium term.
LEWIS: And who looks after the property – does the investor as you call him, or the landlord I suppose we might call him or landlady? Do they look after it or do they employ an agent to do all the work?
REEVES: Obviously they have the choice – it is their own property and this is part of the fun as it were of buying one’s own investment. Or to avoid the worry, but there are plenty of competent managing agents – many of whom are members of ARLA.
LEWIS: That’s the Association of Residential Letting Agents?
REEVES: That’s right. They are scattered across the country and they can offer most importantly advice before the investor plunges in and buys a property. They can also find a tenant and look after the formalities, collect the rent and manage the property.
LEWIS: Now I’m sure one of the things that attracts people is that they hope anyway to make a capital gain with the way property prices are rising, but of course they will face capital gains tax if ever they sell, so that’s a consideration, isn’t it?
REEVES: It is yes. It isn’t quite such a problem because there is tapering relief available now over a 4-year period, so the longer you hold the asset the less capital gains tax you pay.
LEWIS: But nevertheless the income from rent – at least the profit from it – presumably that is taxed as income?
REEVES: Well, most people are taking a Buy-to-Let mortgage of course and all the interest that is paid on such a mortgage is allowable against the rental income. If it’s set up correctly – and we wouldn’t advocate incidentally more than about 70% borrowings so the investor does have to have some capital of his own – he/she shouldn’t have to pay very much in income tax. So it should balance itself out on the revenue front. The main reason for investing in the market is for the capital growth.
LEWIS: But there are some risks aren’t there – there must be?
REEVES: Oh yes, there are definitely risks. First of all there’s the risk of the property perhaps not being let promptly each time it becomes vacant. So again take advice from your letting agent on demand in the local rental market. Secondly, as we all know, interest rates can go up as well as down. And rents don’t always follow the rate of inflation – they can level off for some time – but the long-term trend is for them to be in line with inflation.
LEWIS: But as you say, exciting as well. Andrew Reeves, thanks very much for talking to us.
