Investing in buy-to-let for extra retirement income

Posted on: 26 October 2017 by 50connect editorial

Buy-to-let mortgages have been back in the news recently, on the one hand, there has been a plethora of tax changes which have affected landlord finances, whilst on the other hand there have been some excellent investment returns.

buy to let

Recent research from Sequre Property Investment, revealed that landlords who invested £100,000 into UK property 21 years ago could now have a portfolio worth £1.23 million – more than 11 times the value originally invested.

However, the buy-to-let landscape is changing, with the gradual loss of mortgage interest tax relief, the ‘wear and tear’ allowance and the introduction of Stamp Duty levy on second homes.

Investing in private rental property offers no guarantees for the future, and like all forms of investment, takes careful consideration and planning, especially given some of the changes mentioned above.

Andrew Turner, chief executive at leading buy-to-let mortgage broker firm Commercial Trust Limited, writes: “There has been renewed discussion recently of pension freedoms driving a new generation of potential buy-to-let investors.

“However, any investment needs careful forethought and planning, especially given the changes that the buy-to-let industry has experienced recently and those that are yet to come. I urge anyone new to buy-to-let to seek professional financial and tax advice first.

“I firmly believe that buy-to-let remains a sound investment option for some people, but it may not be the right choice for everyone. Further investment in buy-to-let properties is excellent news for the industry, the housing market in general and for tenants, particularly at a time when demand for rental properties is currently outstripping supply.”

A recent survey from Retirement Advantage, underlined the appeal of buy-to-let investment among those approaching retirement age, with rental income considered an attractive way to fund their retirement.

The survey of 1,005 people aged 50 over older, yet to retire, indicated that 13% intend to invest in property once they reach retirement – a significant figure that could see an additional 1.3 million buy-to-let landlords in the coming years.

Those surveyed perceived buy-to-let to be an attractive method of attaining capital growth on their investment, with 50% looking to receive a regular income from rental properties and 44% aiming to boost their retirement income.

The survey also showed that 36% believe that property is a safer investment than stocks and shares, with 35% feeling it would offer better returns than leaving money in a pension or bank.

Buy-to-let investment can deliver two forms of income: from regular monthly rental income and from capital growth from potential house price increases much further down the line, although house prices can fall as well as rise. Many older people may have a smaller window for capital growth.

However, it is essential to plan ahead, to determine what type of property will be attractive to local tenant demand, what location has a strong demand for private rentals and what type of tenant you might attract.

Then there are considerations over who manages the property. Do you want to be hands-on and deal with not only the paperwork and recruitment of tenants, but also the upkeep of the property, legal obligations, maintenance and inventory checks?

A number of variables from the outset can mean it takes time to see a return on investment. These include costs such as Stamp Duty, bringing property up to specification, letting agent fees for finding a tenant, paying for a property inventory, electrical and gas works and more.

Andrew Turner continues: “I urge anyone interested in investing in buy-to-let to seek appropriate professional advice on all aspects involved. This would commonly mean speaking to a financial advisor and tax specialist. If you need it, a letting agent can help with the day to day running of a rental property (and ensuring you meet all property regulations), and as a specialist buy-to-let broker Commercial Trust can help to identify a mortgage solution that meets your circumstances and needs.”

 “We welcome anyone who needs help regarding their buy-to-let mortgage needs to contact us. Interest rates are currently at an all-time low, political instability is influencing global investment markets and there is high demand for properties from tenants. Therefore there is good reason why shrewd people are seeing the appeal of buy-to-let mortgages.

 “Rules introduced by the Government over the past couple of years have also brought significant change to the cost of buy-to-let and landlords have seen enormous taxation upheaval. Additionally, other legislation means there are a number of requirements that landlords have to meet such as the health and safety of their property and a tenant’s right to rent in the UK.

“Ultimately buy-to-let investment is a business and whilst there are support services available that can help to simplify property investment it is vital to have a clear picture of your landlord obligations.”

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