Is it time to cash in your pension for a buy-to-let property?

Posted 23 June 2016 by Helen Christie

Marco Robinson, an award-winning entrepreneur and best-selling author, is a strong believer that buy-to-let offers an effective and relatively painless route to financial freedom...

Marco Robinson, who has purchased 108 properties in the last year, highlights why the buy-to-let market makes for a great retirement pension pot and offers his advice on how pensioners can make the most out of property investment.

The buy-to-let market is predicted to boom over the next 10 years as affordable homes become more and more unattainable. According to figures by the Council of Mortgage Lenders, overall mortgage borrowing figures have increased by 60% in the last year and the UK’s annual buy-to-let spending expanded to £27bn. Taken altogether, these statistics suggest that the stamp duty hike, announced by the government last year to dilute the dominance of UK landlords, is not having the intended effect. Instead of lessening the demand for buy-to-let, the tax hike is encouraging a rise in property values, which is making homeownership even more difficult for first-time buyers and is promoting a spike in investment from landlords.

The current property market therefore presents a unique opportunity for pensioners with the available funds to purchase property, invest in buy-to-let and become financially secure through property ownership.

Indeed, numerous UK pensioners are now benefiting from the current boom in the buy-to-let market by downsizing their own homes, using the money to purchase two or three buy-to-let properties and living off the rental income in their retirement.

This preference for property investment as a pension pot is well placed given that the total rent collected by landlords reached a record high of £53bn in last 12 months, according to research by Kent Reliance. Moreover, since the availability of buy-to-bet mortgages in 1996, every £1000 invested in the sector is now worth £13,048.

Adding to this favorable situation is a recent governmental ruling on pension freedoms. These new pension laws are giving individuals over the age of 55 the right to access money in their pensions with a lesser withdrawal tax penalty than they would have otherwise been subjected to. In turn, pensioners can use this money to invest in buy-to-let in order to ensure their future financial security. 

This is fantastic news because, whilst pensions and life insurance have been some of the worst performing investments to date (with a 3-4% return over a lifetime), returns on buy-to-let sit at around 8-10% rental income, with 25% gains over two and a half years. Consequently, pensioners are being given the opportunity to put aside their financial worries and to live out their retirement years doing what they love without having to worry about not having enough cash to do it with.

The concept of property purchase is also an incredibly easy one for pensioners to get their head round because, as long-standing owners themselves, they are effectively doubling on their own experiences. Moreover, an investment in a tangible asset in the form of bricks and mortar is far easier to get to grips with than the usually unknown and confusing concept of shares, funds and bonds.

Of course, property investment as a pension pot needs to be part of a clearly thought out, long term, strategy. This means undertaking comprehensive research of property prices, rental returns and tenant clientele in different areas. Moreover, it may be advisable to put any property that is purchased under the name of one’s immediate kin, perhaps a grandchild or child, in order to eradicate the burden of inheritance tax and to secure a longer-term mortgage contract.

Find out more about buy-to-let mortgages

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