Investing in UK property with the intention of it forming part of your pension pot
Strong house price growth in recent years has led many people to declare their property is their pension and this can be shown in the huge number of landlords who are looking to use their property portfolio as their retirement income. Some may find pensions to be inflexible – money invested cannot be touched until at least the age of 55 (57 in 2028), but it is also important to remember that contributions benefit from tax relief and investment strategies are well diversified over geographies and sectors.
POPULAR ASSET CLASS
A new government report[1] has revealed that the majority of the UK’s landlords choose to invest in UK property with the intention of it forming part of their pension pot. Ongoing price rises, even during slower times, have made it a popular asset class among investors who want to cash in on capital gains later in life. This is alongside the money earned through rental income if an owner decides to invest in UK property in order to let it out to tenants, or as a short-term or holiday let.
LONG-TERM INVESTMENT
The latest English Private Landlord Survey, commissioned by the Department for Levelling Up, Housing and Communities, has found that this trend is still dominant among investors. More than half (54%) see their properties as ‘a long-term investment to contribute to their pension’.
When looking specifically at buy-to-let landlords who invest in UK property, this rises to 58% who intend to keep their property or properties until retirement age. Bricks and mortar in the UK has performed well as an asset class across almost every area of the UK in recent years, even throughout the COVID-19 pandemic.
ACCIDENTAL LANDLORDS
The largest proportion of individual landlords (43%) own just one rental property, says the report. Many of these could be made up of ‘accidental landlords’ – those who inherit a property, or are in a position to keep one when they move house and end up renting it out.
This represents around 20% of tenancies. Almost a fifth (18%) of landlords own five or more properties, which makes up 48% of tenancies. It is likely these landlords invest in UK property to make up all or most of their income.
CAPITAL APPRECIATION
While ‘flipping’ property – where you buy at a discount, potentially refurbish and then resell shortly afterwards – can often turn a profit, this method of investment is much higher risk. It often also doesn’t benefit from the natural capital appreciation that takes place over time. Those who invest in UK property for a long-term investment often see the greatest gains over time. There are also a number of costs involved when buying and selling, such as stamp duty and legal fees, that cut into the profit with each transaction.
POSITIVE STRATEGY
Some investors plan to keep their buy-to-lets to provide an ongoing income from the rent during retirement which can be a positive strategy for many, but there are things to bear in mind.
If you plan to be a landlord into your retirement, then you will need to factor in the work being a landlord entails and if you aren’t able to do it then you will need to pay someone who can. It is important to take a long-term view of these costs when deciding to take the leap into becoming a landlord.
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Whether you’re thinking about buying to let or expanding your property portfolio, to discuss your options contact Cedar Crest Ltd – telephone UK T: +44 (0) 203 883 1017, HK T: +852 6645 4462 – email info@cedar-crest.co.uk.
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