Many people are tempted to purchase buy-to-let property at auctions because they often appear to be sold at bargain prices. If the rents that can be charged on property are not high enough, a purchase could be a bad investment.
A June 2017 report in the Daily Telegraph by Kate Faulkner pointed out the pitfalls that can occur if research is not carried out before bidding on buy-to-let property.
Unless a person is a cash buyer, they will normally finance a buy-to-let property deal with a commercial mortgage. In 2017. stricter lending criteria were introduced that required rents on buy-to-let property to cover around 145% of the commercial mortgage repayments if the interest rate goes up to 5.5%. Unless investors meet this affordability test, it is likely that an application for a commercial mortgage will be turned down by a lender.
This is why it is important to make sure that expected rents are high enough. In areas of high crime, it is likely there will be little demand for privately rented property, and consequently rents for these areas could be low. Faulkner advises prospective buyers to talk to letting agents about rent levels.
Even if rents are high enough to pass the new affordability tests, there could still be problems finding tenants in low demand areas, so consultation with an expert is likely to be a shrewd move.
Provided landlords conduct thorough research, Faulkner believes that bargains can be found at auctions on buy-to-let properties.