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Buy to let can provide savings

Tue, 25 Jul 2006

Purchasing a property to let out to students can provide financial returns in excess of the UK average, but prospective landlords should be aware of new legislation that will affect their investments, researchers are warning. Buying a student house to give the peace of mind of good quality accommodation used to be the province of concerned parents. The situation is now changing: other high university expenses and the steady rise in housing prices are now making it more important that student property should generate a healthy return for investors, and students are becoming landlords too. Earlier in the year, the Bath Building Society launched a 100 per cent mortgage product for houses up to £250,000, aimed specifically at students. While studying, borrowers qualify for a discounted repayment rate. For older generations, property can now be purchased through self-invested personal pensions (Sipps), with tax relief on the purchase price and rental income. According to Moneyfacts, the UK's leading independent financial information provider, the average rise in property values in towns with prestigious and large universities was well in excess of the UK average. While the many benefits in this market are attractive, Moneyfacts cautions that landlords now need to obtain licensing rights from local councils for houses of multiple occupancy (HMOs) or they could face being fined thousands. Both the definition of an HMO and the costs of licensing and letting vary from council to council, Moneyfacts says. Some will charge over £960, depending on the number of tenants and others increase fees incrementally per let. Business Moneyfacts editor, Lee Tillcock advises landlords: "Weigh up the benefits, against the costs of legislation, improvements to the property and be fully aware of the future rulings planned.

"Also it is essential (to) seek advice from a qualified accountant and financial adviser, as taxation can also be complicated".

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