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75% of pensioners may consider property investment

Posted on 2015-07-21

When the latest pensions changes were announced during the 2014 Budget, many believed that they would lead to more people of retirement age investing in property, becoming what were dubbed as ‘silver landlords’. The changes came into effect back in April and, as commentators and analysts predicted last year, many are now considering property investment, a study by IP Global has revealed.

In summary, the study found that:

  • Up to 75% of pensioners may have considered making a property investment
  • The buy-to-let market and the Private Rental Sector are now seen as secure places to invest in the eyes of pensioners, far more so than the stock market, which is deemed to be far more volatile and less safe for pension monies to be invested in by many

Pensioners choosing to drawdown

Easter Monday saw the start of what some have dubbed as the ‘pensions revolution’. Around 400,000 people with defined pension contributions retire every year, with many traditionally swapping pensions for annuities, as these provide a guaranteed annual income.

However, since 6th April, many have considered investing their money elsewhere, and it appears as though a significant sum of the £12bn saved annually will go into the property market.

Pensioners will have large chunks of tax to pay before they’re able to invest their money in property, but it appears to be a popular policy.

New found freedoms mean that there’s been a sharp rise in demand for experienced and qualified advice on what those of retirement age can do with their savings. Many are looking for advice on how they can make the best possible use of their pension pot as they look to invest it wisely.

Overall, 70% of pensioners have opted to drawdown part, if not all, of their pension pot - and the survey shows that the vast majority of pensioners with available cash have, at the least, considered using this to fund a buy-to-let property in either the domestic or the foreign market.

It’s thought that the income generating potential of the property market, as well as the growth and stability of the buy-to-let market over the past few years, are major contributing factors to this, with many pensioners viewing it as predictable and stable in the long term, unlike the stock market which is viewed as a less safe investment.

Landlords urged to look at yields

When looking towards the buy-to-let market, many pensioners are being encouraged to assess monthly yields to generate regular income, rather than just the rental rate they can achieve.

The yield shows how much of an annual return you’re likely to get on your investment and it’s calculated by showing a year’s income from rent as a percentage of how much the property cost you.

For instance, if you rent out a flat you bought for £100,000 at £200 per week, then your annual rental rate would be £10,400. This means the yield would be 10.4%.

This is what’s known as the ‘gross yield’. The ‘net yield’ is the amount you’ll receive after fees, repairs and running costs.

Within the UK, demand for property from both landlords and tenants remains high and the private rental sector has doubled in size over the course of the past decade. This demand has fuelled an increase in rents and yields in many areas.

If you’re thinking about investing in rental property, then the rate of rental growth – as well as the yield - is incredibly important. When you retire, you no longer have an annual salary to fall back on and, as a result, you’re more exposed to the pressures of inflation.

Image courtesy of Shutterstock

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