With the government’s recently introduced pension reforms now allowing over-55s to cash in on their whole pension pot and spend it as they wish, fears of a buy-to-let boom have been flagged up.
While there are some drawbacks for savers who are considering becoming ‘silver landlords’, there are also many advantages. And most of the issues can be dealt with by enlisting the services of a good letting agent anyway!
Worries about a buy-to-let bonanza have been fuelled by the announcement that Nationwide is offering anyone up to the age of 70 the opportunity to take out a 35-year loan. Previously, banks have been hesitant about sanctioning borrowing beyond retirement age. Now, however, many other lenders are weighing up whether to follow Nationwide’s lead by raising their age limits as well.
It’s unlikely that many people thinking of using their pension to invest in buy-to-let properties will be able to buy outright, with the average house price in the UK currently standing at around the £270,000 mark. Taking out a mortgage to cover this shortfall has traditionally been blocked as banks generally want people to repay before they reach 70 or 75.
There is, though, a fundamental difference between residential mortgages – usually paid for by work income that might disappear in retirement – and a buy-to-let mortgage that is paid for by rental income, something that won’t suddenly stop when an owner retires. As such, a buy-to-let mortgage for a retired person represents much less of a risk to a lender.
According to research consultancy BDRC, many of the UK’s 2 million landlords view their property as their pension. Buy-to-let investors are often unfairly tarred as ‘amateur landlords’ who don’t understand the complex market they are entering, but if they have a serious investment in the property they are looking to let, they are bound to be much more determined to make it profitable.
Buy-to-let is also a thriving, growing market. Government figures suggest around one in five homes in Britain belong to private landlords, with this figure predicted to go up to one in three by 2032 as high house prices force more people to rent for the long-term.
Where a buy-to-let investment might once have been seen as a risky, unpredictable investment, it now looks a pretty sound one. For retired people, who can devote more of their time and disposable income to being a reliable landlord, it makes sense on a number of levels.
As we mentioned before, it’s not without its dangers. Taking out large amounts of money from a pension pot will lead to a substantial income tax bill – for example, withdrawing £150,000 would create a £40,000 demand from HMRC. In addition, buy-to-let properties attract tax on rental income. And, if the property is later sold, it would be subject to capital gains tax. Elderly landlords also need to bear in mind inheritance tax.
While these are legitimate concerns, this shouldn’t put people off as the rewards from a buy-to-let investment can be great. Nationwide said they recognised that buy-to-let was becoming a more common way for people to fund their retirement and changed their rules accordingly. Buy-to-let doesn’t mean an immediate ticket to untold riches, but in the current environment it seems like a fairly safe investment choice.
Some critics have said a rental downturn could put people’s finances in jeopardy, but all the recent evidence suggests such a downturn is very unlikely. Other doubts surround the ability of older people to fulfil their responsibilities as landlords, the argument being that a 92 year old or a 104 year old wouldn’t have the capability to do this. It’s a fair enough point, but this is where good, reliable property management services come into play. At Letting Solutions we can help to manage your property, including property repairs and finding tenants, in a fast and efficient manner, providing the best service for landlords and tenants alike.
A good letting agent should take the pressure away from a landlord/buy-to-let investor, and after many years of experience in this sector we believe we offer a quality of service that is second to none.
To get in touch with us, please call: 0845 520 1420. We also provide an online free property valuation to give you an idea of how much your rental property could be worth in the current market in West Lothian.