The pension reform could affect the Buy-To-Let market
Rob Alves from the Mortgage Advice Bureau (MAB) comments on how the Buy-to-Let sector may be affected by the upcoming pension reform.
As a result of the older generation of the UK worrying over the cost of care and the meagreness of their pensions, the Buy-to-Let market is seeing something of an influx of elderly landlords looking for a way of maintaining income for their future. 78 per cent of current landlords see their investment in Buy-to-Let properties as a pension, according to data collected by market researchers BDRC Continental. And, when changes to the pension system go ahead, that figure will begin to increase.
Under the proposed new pension system, from April 15, over-55s will be able to take separate lump sums when they retire and each withdrawal they make will be treated as income, with the amount of tax you pay on it depends on how much other income you ‘earn’ that year – making it perfect for investing in a Buy-to-Let property. Savers have always been able to take 25 per cent of their pension in a tax-free lump sum but have then been guided into buying an annuity with the remainder of their savings. From April 2015, over-55s will take smaller lump sums instead of one large one and each individual amount will be 25 per cent tax-free. Income from private rental properties reached record highs in the UK last month, averaging £761 per month. Combine this with the shortage of property to fuel the increased demand that Help-to-Buy has brought an investment on property suddenly sounds like a completely viable option for the future.
Would a buy-to-let investment benefit me in the future?
Buy-to-Let investments can provide two forms of income. One is the excess rental income that the landlord receives after the mortgage has been paid, and the other is when the property value rises. When selling the property, you receive the whole amount which you can add to your retirement fund or can put towards the proceeds for a bigger Buy-to-Let property. Those with larger pension pots will be able to use the new rules to avoid paying the 40% tax by drawing smaller sums out over a period of time. The private rented sector may well be the new solution to the pension gap and could be a viable long-term investment thanks to increased income security and longer average tendencies.
On the other hand…
A Buy-to-Let investment requires a lot of commitment and thought, especially if you plan on tying all of your capital into a property and there are also separate tax issues to consider. It is important to remember that whilst property investment offers security and possibility of profit in retirement, it also requires a lot more effort. Much like a pension, investment in property is very much a long-term strategy and there are numerous possibilities that you have to look at, which is why it is important that you get advice on your steps from a professional mortgage adviser.
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