Hi, I have held my BTL for about 2 years now When I purchased I was advised that the price I paid was determined more by the rental income achieved than anything else If that is the case then would it follow that with House prices dropping or remaining stagnant, the value of my properties would still be determined by the rental income
The market value of anything is determined by the price someone will pay. It is not linked to the rental income.
I think you are confusing the value of the property with the lending criteria which is based on rental income amongst other factors.
Lenders will look at the potential rental income when deciding how much to lend. They are looking for good rental cover i.e. by how much the rent will cover the interest. It's usually benchmarked at 1.2 times.
So if your mortgage is £500 per month, the rent will need to be at least £600. This varies with the lender though. There may be more room for negotiation on this if you have a particularly large deposit.
The lender wants to minimise the risk and make a profit.
I actually think rental income is a primary factor in the value of a BTL property.
High rental yield makes it a good investment.
Many recent BTL buyers however bought too expensively counting on price appreciation. This has in many cases not materialised and seems even less likely now.
If your property has a relatively high rental income, I guess the value will reflect that and perhaps not change too much with general house price fluctuations.
Unless of course rental prices drop significantly as well.
Originally posted by holy cheeses: Forgive me if I'm being dense but what happens to rents in comparison to the property market? Do they fall and rise in tandem with it?
I don't think they 'seesaw' against one another, more so much dependant on the amount of renters and homebuyers there are.
I am tired, I am weary. I could sleep for a thousand years.
but what happens to rents in comparison to the property market? Do they fall and rise in tandem with it?
