Many people dream of becoming buy-to-let property landlords; but before you go seeking out your first buy-to-let mortgage, it’s important to know what you’re getting into.

Property investment can bring financial freedom for the savvy investor, but it’s not without its risks.

Of course, the core risks of entering into a buy-to-let mortgage agreement are simply that you might find yourself unable to afford the repayments, and you might end up receiving less from your buy-to-let investment than you put in.

But there are various reasons why you might find yourself in these scenarios.

Interest rates can go up

If you’ve kept an eye on the news lately – and as a property investor, you probably should – then you’ll know how interest rates are rising across the board.

And for some property investors, that means the properties they’ve nurtured for months or even years are currently unprofitable.

The same can happen to you if your BTL mortgage’s interest rate takes an unexpected turn upward.

The good news, there are ways to mitigate the impact of rising interest costs.

For example, a fixed-rate mortgage can enable you to lock in a great rate for a set number of years. At the end of the fixed rate term, you can then remortgage to lock in another decent rate; or even a cheaper rate if you get lucky.

Interest rates can go down

Of course, interest rates can work the other way too. 

If you’ve chosen a fixed-rate mortgage and interest rates should happen to decrease, you’ll be paying more than you would with a variable or tracker mortgage over the fixed rate term; and that will naturally eat into your returns from the property.

And while we’re on the subject of mortgage interest…

Personal BTL mortgages mean higher tax costs

You might have heard from more seasoned investors that buy-to-let investment lets you offset your mortgage interest costs from your taxable income.

Unfortunately, that’s no longer the case; and a surprising number of investors are still in the dark about it. If you go into your first BTL purchase with numbers based on this outdated assumption, you could find yourself with far less in your pocket at the end of each tax year.

That is, unless, you go for an SPV buy-to-let mortgage. If your property portfolio is held within an SPV limited company, you retain access to 100% mortgage interest tax relief.

Property values can go down

Generally speaking, property prices tend to follow an upward trend; which is why many choose to invest in property assets.

But the value of your property could go down too. 

Again, if you’ve been following the news, you’ll know that house prices are starting to fall in response to rising interest rates, with this year seeing the biggest December drop in four years.

Local conditions can negatively impact your buy-to-let’s value, too; such as troublesome neighbours, rising crime rates in your area, or new airline flight paths that pass directly above the property.

This isn’t just bad news when it comes to eventually sell your property. If house prices fall far enough, you could end up in negative equity; where your outstanding mortgage balance is higher than the current value of the property itself.

Paying a higher deposit at purchase can help you minimise your chances of ending up in negative equity, as a lower LTV ratio means your debt amount will be lower. 

(But of course, you’ll need the funds to pay the higher deposit in the first place.)

And of course, some issues affecting house prices – such as current high-interest rates – are only temporary. As long as you’re patient and you continue repaying the mortgage, you can see your portfolio return to profitability.

Repair bills can eat into your profits

It’s not always outside influences that affect house prices.

Sometimes your property itself can develop issues that can reduce or even wipe out its value; like rising damp, wall cracks, electrical faults, plumbing problems, or perhaps a current EPC rating that won’t meet the future minimum standard for landlord-owned properties.

In extreme cases, you might have to deal with the catastrophic impacts of flooding, fires, burglaries or natural disasters.

And unfortunately, problems like these cost money to put right. Repair and renovation bills can rack up into the thousands over the life of the investment.

Again though, there’s some good news. Buildings and contents insurance for landlords provides financial protection if the worst should happen; and although it’s another monthly cost to factor into your profit calculations, we think it’s definitely worth considering.

Tenancy problems can leave you with no income

As a property investor, the money coming in from your tenants each month is the bread and butter of your property investments.

But that rental income can come to a sudden stop at any time.

In the current economic conditions, your tenants might find themselves unexpectedly out of a job, or otherwise unable to pay their rent.

Eviction can be a messy, expensive affair; and finding new tenants might be time-consuming; all the while your property remains vacant and generates zero rental income.

Fortunately, rent guarantee insurance can help you mitigate the risk by covering lost rent. Once again, the monthly insurance costs will slightly impact your profits; but if you end up facing a void period, you’ll be glad it’s there.

In conclusion

Have you noticed a theme across this article?

When it comes to property investment, everything is a trade-off.

There are always risks to investing, but the rewards for accepting those risks can be greater. Conversely, as long as you’re happy to accept slower and/or smaller profits, there are ways to mitigate those risks and enjoy a steadier income from your property portfolio.

Looking to start investing in buy-to-let properties? SPV Mortgages can help you secure a great limited company mortgage to help you fund your first purchase. Get in touch online and get pre-approved with hundreds of lenders today.