Should you invest in Buy to Let when you retire?

16th October 2017
Should you invest in Buy to Let when you retire

New research from Retirement Advantage shows that 13% of over-50s are considering investing in Buy to Let when they finish working. Resulting in a potential surge of 1.3 million new landlords across the UK.

Why the sudden interest in property?

22% of 50-somethings who are adding property investment into their retirement plans are doings so because they already have experience as a successful landlord. Meanwhile, almost one in five (18%) have an underlying interest in property and believe that they would enjoy the challenges and processes involved in being a landlord.

Many people who are planning to retire within the next 10 – 15 years are worried that their retirement fund and pension pots simply will not be big enough.

Research shows that the state pension provides £5,177 less, per year, than the average couple of retirement age require for a decent quality of life.

Why Buy to Let?

The main reasons for investing in Buy to Let in retirement are:

  • Bringing in a regular income and potential for capital growth (50%)
  • Boosting income in retirement (44%)
  • Belief that investing money in property is safer than stocks and shares (36%)
  • Property provides better returns than a pension fund or savings account (35%)

Things to consider before investing in BTL

Like all financial decisions, there are a range of factors to consider seriously before jumping headfirst into becoming a landlord with a Buy to Let mortgage in retirement. These include:

Buy to Let disadvantages

Though the companies trying to sell mortgages tend to downplay them, the Buy to Let scheme does have disadvantages and may not always work out the way it is intended to. These pitfalls include:

  • Falling property prices: Property value is not guaranteed to increase. In fact, between 2007 and 2008, the average UK property price fell from £183,959 to £149,907, according to the Nationwide House Price Index
  • Increased Stamp Duty on additional property purchases. In 2016, legislation was introduced which saw Stamp Duty Land Tax (SDLT) on non-main residency properties increase by 3%.

Lifestyle changes

Becoming a landlord is a big change for those with no prior experience in the industry. There are careful considerations to be made, including who will carry out the property management duties. You may choose to do this yourself, but it can be difficult to be available around the clock and hiring a professional or maintenance team may be more effective.

Income instability

Unfortunately, you cannot guarantee that your property will be continuously rented. Although you can hope for the best, you will need to have a plan in place in case the property is empty for a few months – this includes both maintaining the property and manging your personal budget without the income from rent.

Unoccupied properties are not the only concern however. Property value fluctuations and a sudden need to sell the property to free up capital can both bring about huge amounts of stress and uncertainty, so be sure to consider all aspects before making any rash decisions.

Primary funding

One of the earliest considerations is where the initial investment money is going to come from to fund the purchase. You can make use of the new Pension Freedoms to access your retirement savings and pension funds from the age of 55, but you need to have a plan in place to cover your future financial needs, should the property decrease in value and leave you with no income or savings to live on.

It is important to note that taking large amounts of money from your pension fund will incur large taxes.

Policy changes

Recently, Stamp Duty has been increased for those purchasing homes in a landlord capacity. Now, all additional properties are subject to an additional 3% liability. When combined with the existing costs of purchasing property, including mortgage fees, interest, insurance and repairs, the true cost of becoming a landlord can be much higher than first anticipated.

Investing your pension in Buy to Let may not be the best option for you. Many see it as a quick way to access a steady income, without contemplating the full effects of the decision.

In reality, investing in Buy to Let is more of a business opportunity than an investment.

To discuss the more viable ways to boost your income in retirement, contact us on the phone number above.