Recent pension reforms may spark a property boom as over 55s invest in the housing market with their retirement savings. So will pension reforms produce landlords & increase prices?
From 6 April, everyone aged over 55 was given the opportunity to withdraw part or all of their pension pots to spend as they wish – rather than having to buy an annuity. Experts predict this may lead to an increase in ‘silver landlords’ as pensioners use their funds to invest in buy-to-let homes. The knock-on effect could increase housing prices to rates that make it even more difficult for first-time buyers to get on the property ladder. But a buy-to-let investment could be a risky option, leaving people financially dependent on the unpredictable rental market and its associated costs for the course of their retirement.
Almost one-third of people with a pension said they may use all or some of their pension savings to purchase a buy-to-let property to provide them with an income during retirement, according to a recent study by insurer Direct Line for Business. 43% said the biggest attraction for buy-to-let properties is the opportunity to gain a regular income, the research reveals. A further 23% of those questioned said they thought the property was the most secure investment, while 17% were attracted by the potential to appreciate capital.
Property investment can provide good returns; average rents reached £767 a month in December of last year according to recent figures from LSL Property Services. Gross yields on buy-to-let homes came in at just over 5% towards the end of 2014, rising to just over 11% once void periods between tenants and house price growth were also taken into consideration.
This represents a monetary return of almost £19,000 in 2014 for the typical landlord before you take maintenance and mortgage payments into account.
Proceed with caution
Will Pension reforms produce landlords & increase prices? The decision to become a landlord should not be taken lightly though, despite the potential yields. With more than 100 different pieces of legislation affecting landlords, the role can be a difficult one to navigate and, unless a potential landlord is confident that they understand all of these, they should consider using an industry regulated agent.
Two further factors to take into account are that you cannot rely on getting 12 months of rent every year due to void periods and you will have to pay maintenance costs to keep the property in good condition.
These considerations could slow the expected rise in buy-to-let schemes within the over 55 age bracket but a mini-boom is more than likely thanks to the long-term income a buy-to-let property can provide, as long as people maintain their property well, use a good agent and understand the law.
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