Mortgages  

Deposit demand to keep most retirees out of buy-to-let

Deposit demand to keep most retirees out of buy-to-let

A new survey has revealed that more than half would consider buy-to-let to boost their rental income, however with the average deposit just over £40,000 most will be priced out of the market.

A poll of 915 savers by specialist mortgage lender Kensington shows more than half (54 per cent) of those aged 40 plus would consider buy-to-let to increase their income in retirement.

However, analysis by the firm of average flat and maisonette prices across England and Wales showed the 25 per cent deposit needed for a first-time landlord taking the plunge following pension freedoms is nearly £43,000.

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This will price many mainstream pension savers out of the market altogether - and will further count out huge swaths of those considering buy-to-let but unwilling to invest more than their tax-free lump sum due to the potentially higher rate taxes that would apply on the withdrawal.

It had been widely suggested that buy-to-let would be one of the major beneificiaries of pension freedoms as retirees flocked to build up tangible, income-generating assets, with concerns over house prices dismissed due to the increase in buy-to-let mortgage availability.

Kensington’s research also showed 28 per cent who are contemplating buy-to-let to boost their retirement income do not know how to apply for a mortgage to get started.

Steve Griffiths, head of sales and distribution at Kensington, said: “The outlook for the buy-to-let market is bright and the potential for further growth as pension freedoms come into effect is undeniable.

“However the would-be landlords will need to be realistic and it is worrying that so many are considering buy-to-let without knowing how to apply for a mortgage. Advice from brokers on mortgages is vital.

“Claims of a wall of money are unlikely to come true and in any case raising a 25 per cent deposit for a buy-to-let mortgage from pension funds will be tough as a look at average property prices across the country shows.”

Would-be landlords considering investing pension cash believe the risk of failing to achieve a comfortable level of income is the biggest risk, the Kensington poll showed.

Around 47 per cent of those questioned are concerned about the risk of not achieving the income they want followed by 42 per cent who fear investing in buy-to-let could mean running out of money in retirement.

Around 25 per cent are concerned about the income tax implications of withdrawing pension cash to invest while 21 per cent fear they will not understand the rules on buy-to-let.

When it comes to choosing the right product, around 44 per cent would use a broker to source a buy-to-let mortgage while 28 per cent would go to their existing lender.

emma.hughes@ft.com