Pension freedoms set to create buy-to-let boom

Pension freedoms set to create buy-to-let boom

Pension freedoms are set to create a buy-to-let (BTL) boom as more than one in 10 people look to invest in property after they retire.

Research commissioned by Retirement Advantage showed that despite the increased tax and regulatory burden on landlords, buy-to-let remains an attractive proposition for many older investors.

A survey of 1,005 people aged 50 plus who are yet to retire and have some form of private pension savings revealed 13 per cent were planning to invest in property during retirement – equivalent to 1.3 million potential landlords on a national level.

Article continues after advert

The main reasons cited for the appeal of buy-to-let were the prospect of capital growth as well as the provision of a regular income (50 per cent) and a potential boost in retirement income (44 per cent).

More than a third of those surveyed (36 per cent) said they thought property was a safer place for their money than investing in stocks and shares, while a similar number (35 per cent) also thought it provided better returns than leaving the money in their pension or putting it in the bank.

More than a fifth of those aged 50 plus (22 per cent) have already experienced success at being a landlord, while 18 per cent said they were interested in residential property and thought they would enjoy the process of rental management.

The buy-to-let sector has recently been hit by cuts to tax relief for landlords, a 3 per cent stamp duty surcharge on additional property purchases and tighter underwriting rules mandated by the Prudential Regulation Authority.

It has been reported that one in five landlords is considering fleeing the market as a result of the changes.

Andrew Tully, pensions technical director at Retirement Advantage, said: “The buy-to-let market looks set for a boom fuelled by the pension freedoms and in the process it will create a new generation of landlords. 

“As a nation, our interest in property remains despite a cooling of the buy-to-let market following the recent tax changes.”

But Mr Tully warned that rental yield may not provide the expected source of income, while buy-to-let properties require close management.

He also cautioned that withdrawing more than 25 per cent of a pension pot in one go incurs an income tax charge.

Tony Silver, director at London-based White House Mortgages, said: “One of the reasons I sold my IFA firm is I could not justify selling pensions and investments anymore because they were so volatile.

"People stopped buying pensions to buy buy-to-let.

“You can do buy-to-let mortgages for people until they are about 90. Lending into retirement on buy-to-let is not a problem, therefore it is very sensible strategy for the grey pound.”

Mr Silver pointed out that the growth rates on buy-to-let properties are similar to those that used to be quoted on pensions and investments.

He said: "In the worst-case scenario, you sell the property. You may have some taxes to pay, but if you have not made money on the property, you won’t have any taxes to pay.