Posted on 16th December 2015
Reforms put pressure on buy-to-let landlords
The lure of property
Given the strength of house prices in recent decades it is easy to understand why the lure of property as an investment – or buy-to-let remains strong. Many of Britain’s estimated 1.4 million landlords1 have profited handsomely in recent years, with strong tenant demand enabling them to push up rents.
The radical pension changes introduced earlier this year, offering savers greater flexibility, have provoked even more interest in buy-to-let investment. Since April 2015, savers aged 55 and over have been able
to spend, save or invest their pension pots as they please. This has led to speculation that people will exploit the ‘pension freedoms’ by cashing in their pots to buy more property – counting on the rental income to fund their retirement.
With 22% of those planning to use the new flexibilities to invest in property and 18% saying they will rely on income from buy-to-let2 it makes sense to take a closer look at the pros and cons of using property to support your lifestyle in retirement.
Buy-to-let as an investment
Sweeping changes introduced in April have given you more choice over how you use your pension savings once you reach the age of 55. One of the key reforms enables you to take your entire pension as cash, subject to tax, if you so wish. Alternatively, you can withdraw an income or one-off lump sums whenever you like. Previously, when people felt forced into buying an annuity, they had much less control.
Ever since the reforms were announced by the chancellor in his 2014 Budget there has been interest in how the new flexibilities will be used: especially whether savers will be tempted to take money from their pension to invest in buy-to-let to fund their retirement.
The new freedom to cash in large lump sums, or even your whole pot, means that as an option buying property with your pension appears to be much more achievable. There is definitely scope to do this as part of a balanced retirement plan. However, anyone considering taking the plunge needs to carefully weigh up the advantages and disadvantages.
It can be profitable
There is a good reason why more than a million people have invested in buy-to-let – investment properties can generate a good income while also offering the potential of capital growth.
Strong tenant demand has pushed up rents to record levels in some areas3, powered by a shortage of housing and the low level of lending to first-time buyers struggling to get on the property ladder. Gross rental yields, the rent received before letting costs as a percentage of the property’s purchase price, are around 5%, according to the industry trade body The Association of Residential Letting Agents4. Nationally, house prices have risen three-fold in the past 25 years5.
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