Have you considered buy-to-let for retirement?
The cost-of-living crisis is not only having an impact on people today, it may potentially have a longer-term impact on our finances. According to abrdn, over 50% of people 40 years or older are anxious about their retirement and five million people approaching retirement are at risk of not having ‘adequate’ pension income according to the Pensions Policy Institute.
If you pay National Insurance for at least 10 years, you’ll qualify to receive the State Pension. However, you’ll need 35 to receive the full amount, which will be £10,600 a year from April 2023. This amount falls far below the £27,000 per year that retired households spend on average in the UK, according to Which? This highlights just how important it is to consider your options when retirement planning.
Why consider property investment?
It’s important to consider that, statistically, we are now living longer, and while the retirement age continues to be pushed back, many of us may not have the desire to continue working well into our 60s. When considering your options for retirement, you need to make sure that you have funds that will not only last, but maintain or (better) increase their value.
Property investment has always been an excellent way of accumulating and generating wealth for later life. Unlike traditional pension funds and savings which can be subject to economic volatility and real-terms decline, property has proven time and time again to be a solid and high-yielding investment providing solid financial security.
The statistics really do back this up – data from the UK Land Registry has found that average property values in the UK rose from £84,620 to £294,910 between 2000 and 2022; an increase of 348%. For those who were investing in property during this time, the returns on investment have been significant and, despite the current hiatus, the same general trend looks set to continue.
~Novel Serialisation: Heavens Fire~
Demand remains high for rental properties in the UK
Back in November 2022, research from Rightmove found that tenant demand in the UK housing market increased by 23% YoY. Similarly, a survey of over 700 landlords by Paragon Bank found that 65% of respondents saw a net increase in tenant demand between July and September 2022. Research has also shown that tenants in the UK are now spending longer in their rental homes, most likely due to the limited supply of properties, which gives much assurance to landlords.
Buy-to-let properties in the private rental sector remain a dependable investment option, largely because the number of prospective tenants greatly outstrips the supply of suitable homes. This means that landlords can expect fewer voids and quicker turnarounds between tenancies; high demand means that any good investment property shouldn’t be left empty for long.
High demand and limited supply have been underpinning strong growth in rental values for some considerable time now. The most recent (February 2023) rental index from Homelet suggests a year-on-year growth rate of +9.9%, while Goodlord’s index quotes +12.5% for the same month. For those seeking a regular retirement income that won’t be badly eroded by the effects of inflation, it’s clear that property investment represents an attractive choice.
What are the risks?
Every form of investment comes with a degree of risk, so it’s vital to weigh up all your options before putting up your hard-earned cash. For example, property can be expensive to buy as well as maintain, and during a low market period, it may take longer to sell. Should you choose to manage it alone, there’s also the time investment of managing your tenant and being a point of contact for any potential issues.
However, when it comes to stability, many would argue that investing in property tends to provide a better, steadier return than a pension and other types of investment, particularly when looking at this long-term. Property investment offers both capital growth and a consistent rental income that can be achieved without having to wait to reach retirement age. Property investment also gives you greater flexibility because, should you wish, you can choose to sell your property at any time.
Speak to an expert
When it comes to finances, always seek expert advice and try to understand the market from different perspectives. Talk to current landlords, mortgage specialists, property investment firms and other professional advisers to make sure that you’re making the right choices to meet your own particular retirement goals.
A full property investment strategy can be a challenge to manage on your own, so using a specialist that can help to streamline the process could be worthwhile. As well as introducing you to reputable lenders and brokers, some specialists can take care of sourcing tenants for you and offer protection against rental void periods. They can also assist with all the various elements of routine rental management.
Purchasing a buy-to-let can be a great choice for building your retirement fund. It not only gives you regular rental income; it should also deliver long-term capital growth. And importantly, history has shown that the total returns tend to be substantially better than those from traditional pensions. As with any investment decision, choices need to made with your personal goal in mind – for example, whether you want to retire early or have confidence that you won’t run out of cash. In short, consider your options and consult a specialist.
By Andrew Ward, Managing Director at Solomon Investment Partners
Andrew Ward has 20 years’ experience in the property sales and investment sectors. Since 2010, he has specialised in supporting UK developers and a global community of investors. He has helped thousands of private, professional and institutional investors to secure high-performing residential properties. He has done this by providing support with all key elements of residential property investment. Examples include market research, property-finding, due diligence and providing a reliable lettings service.
