Property has long been an attractive prospect for those seeking a retirement income, even if they already had a pension. Over recent years, low interest rates, the cost of buying an annuity for even a moderate income and the uncertainty, not to say volatility, of the stock market has made the solidity of a “bricks and mortar” investment even more appealing. Even taking into account all the recent tax (and other legislative) changes in the buy-to-let market, the nature of retirement means that buy-to-let can still be a very viable investment – all the more so now pensions freedoms allow retirees to use their pension pots as starting capital.
The financial aspects of buy-to-let investment in retirement
Investment is a numbers game and those numbers can be influenced both by market forces and by government actions. While there have been quite a few changes to the buy-to-let market, there are two which stand out. The first is the 3% stamp-duty surcharge and the second is the phase out of traditional, straightforward tax relief on mortgage interest and its replacement by a fixed allowance for mortgage-interest expense. Both are effectively unavoidable but their practical impact varies widely.
As the stamp duty surcharge is a percentage rather than a flat fee, its effect can be mitigated firstly by looking at lower-priced properties and secondly by looking at properties where a reasonable amount of capital appreciation can be expected. Both of these factors point to the north and, in particular the North West, which is also recognised as being a location which offers good rental yields.
The changes to tax relief on mortgage interest really only impact higher-rate tax payers. If you have sufficient income from other sources to put you into the higher-rate bracket, then you would need to look at this issue very carefully. If, however, you can live comfortably on an income which puts you below the higher-rate threshold, as may be the case if you have already paid off your mortgage and have ceased to have to pay the costs of commuting to work, then you may find that this change has no impact on you whatsoever.
As a final point, while it’s important to take the recent changes into consideration, it’s also important not to let them become your focus. You still need to think about your financial basics, such as your long-term goals, how much income you need, how much starting capital you can reasonably afford and how much you can feasibly put aside for ongoing care and maintenance so that you have a clear view of whether or not buy-to-let is a realistic option for you in your particular situation before you start to look at the details of how it could work.
The practicalities of buy-to-let investment
In a sense, it could be argued that buy-to-let investment and retirement were a contradiction in terms. While all forms of investment require some degree of management, it’s probably fair to say that buy-to-let requires more involvement than most since you literally have a house to manage (and indeed its tenants may need managing too). You can, of course, enlist the help of other people and many buy-to-let landlords find this help invaluable, but at the end of the day, you are still in charge and the key decisions are yours to take.
Author Bio
Hopwood House are specialists in property investment, with a wide range of opportunities in the UK student property, care home and buy-to-let investment markets.
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Daniel Peacock