A new generation of landlords is expected to flood the buy-to-let market; pensioners.
A study by YouGov and Old Mutual Wealth showed that 11pc of those approaching retirement plan to buy a second home to rent out, compared to the 6pc of pensioners who currently rely on this form of income.
As many of you will be aware, new annuity reforms come into effect in April, that will allow baby-boomers to withdraw their pension in one lump cash sum. This will no doubt cause a surge in investment into residential property which combined with the UK’s chronic housing shortage is likely to support prices nationally.
Many pensioners, and especially new pensioners, are a generation borne of scepticism of wealth managers and stock market investments. The advantage of residential property investment is clear; they understand it, it is tangible bricks and mortar, their children (or they) can live in it, it can produce an attractive rental yield, rents typically rise in line with inflation, and over the longer term capital values will surely appreciate. Just the sort of characteristics that should appeal to a pension fund or indeed a pensioner.
The new rules come into effect in April and whilst we do not expect a tidal wave of business straight away, it should provide a further pool of clients, and a further pool of long term residential investment property buyers.
Where and what will be the “ideal investment” will depend on individual circumstances; London seems unlikely given the high asset prices and the low rental yields. Outside London, the South and East of England and Midlands all would be more attractive long term plays. Possibly more skewed to one and two bedroom flats and houses, which generally require a lower asset allocation; say £150,000 to £500,000 rather than £500,000+ family houses.
We are strong believers in the East Midlands and East of England, and within that our more “local” area of expertise in Rutland, Leicestershire and Northamptonshire all seem areas that should benefit. A 2 bed terraced property priced at £125,000, rented at £600 per month and yielding 5.7% in an area of good tenant supply that will always let readily, and in an area with a strong local economy would be an example of what we would recommend. Or for the larger investors a portfolio of such properties. A useful diversification for ones pension pot.
Please do call us to discuss your investment requirements, we are very active in the property finding department at the moment.