7th April 2015 by Select Property
Select Property Group discusses the benefits of buy to let investing as a source of retirement income below.
This month’s pension reforms are set to hand a generation of pensioners the kind of access to their savings that’s never been seen before. But what are they going to be spending their money on?
Well the tabloids have been awash with sensationalised predictions of Lamborghinis flying off the forecourts, but the truth of the matter is that many will simply be looking for a better returning asset class than the traditional annuity.
Property, specifically in the private rented sector (PRS), is tipped to be one of the most highly favoured investments, with 16% of over 55’s expected to use pension changes to make a buy-to-let property investment.
So what makes the UK’s buy-to-let market such a strong investment proposition for your retirement?
An established history as an investment asset
Since the term ‘buy-to-let’ was coined and loans for the sole purpose of purchasing property to rent out were introduced in the mid-1990s, there has been a steady rise in the number of buy-to-let landlords in the UK.
In 2003, 11% of the homes in England were in the PRS. By 2014, that proportion had grown to 19%, and now 4.4 million English homes are owned by buy-to-let landlords. Last year a survey of 2,400 UK investors rated property as the most profitable asset class, and the second safest behind only the poor-returning cash Isa.
Interest rates have been at 0.5% since 2009, and this low rate environment has been great for investors. Whilst many were expecting a rise in the rate in 2015, it was interesting to hear the Bank of England’s Chief Economist, Andy Haldane’s, comments in March that interest rates are just as likely to fall further as they are to rise in the next 12 months.
Additionally, the rise in the number of landlords in the PRS has fuelled a significant increase in the number of buy-to-let mortgages available from brokers in recent years. At the end of 2013, there were 458 specialist buy-to-let loans for investors to choose from. By the end of 2014, this number had grown to 707.
Signs of further growth
Buy-to-let lending grew by £1 billion in 2014, and the strong performance of the market should see more investors or retirees wanting a piece of the action.
This year, rental rates have grown every month nationally. In February, 31% of UK letting agents reported an increase in monthly rental rates. A huge contributing factor to this is that the demand for rental property far outstrips the supply. Those same letting agents reported that the number of properties they had available in February stabilised, whilst the number of new prospective tenants they registered had grown.
Provides a regular monthly income
April’s pension reforms are expected to see a new wave of ‘silver landlords’ enter the buy-to-let market, with as many as one to six savers affected by the reforms expected to take a lump sum from their pension pot to purchase rental property. A buy-to-let investment will generate better returns than most annuities, whilst still providing pensioners with a regular, monthly income stream for their retirement.
What’s more, a fully-managed investment, can help to ensure continued tenancy and high maintenance levels, meaning that those strong monthly will be assured in the long-term whilst pensioners can relax and enjoy their retirement.
Select Property Group has produced a guide for savers who may be thinking about using lump sums from their newly freed pension funds to invest in a buy-to-let property, ensuring that their personal circumstances. Click here to download Pensions, Buy-to-Let and Planning Your Retirement guide.