Cheap houses, low interest rates and the opportunity to renovate and “flip” for big profits – buy-to-let has been such a dependable source of wealth that many pensioners have relied on it to fund their retirement.
For more than 30 years, during what wealth management firm Rathbones called a “golden age of property investing”, returns on buy-to-let investments exceeded those of other investments.
But can property still trump a pension?
Landlords today face a potent mix of higher taxes, rising costs and more red tape than ever, while the majority of savers who are restricted to defined contribution pensions are at the mercy of volatile markets.
Making the wrong choice for your money can mean the difference of thousands of pounds, not to mention sleepless nights in retirement. We’ve enlisted industry experts to weigh up the pros and cons.
What are the benefits of buy-to-let in retirement?
- The money’s not locked up until you’re a certain age
- You don’t need all the cash upfront
- Potential to leave a legacy that will continue to pay out for years
Despite the considerable headwinds facing landlords today, there’s still money to be made from property portfolios.
There’s the potential to make regular income long before you’re allowed to access pension savings, while your properties (hopefully) appreciate in value over time.
Nick Mendes, of mortgage broker John Charcol, said: “The single biggest draw of buy-to-let is access. A pension stays locked away until you’re in your 50s. By contrast, a rental property puts both the income and, eventually, the capital, within reach at any age.”
For anyone dreaming of stopping work early, that freedom is hard to ignore.
Mr Mendes added: “Then there’s leverage. Property is one of the very few investments you can buy largely with someone else’s money. Put down a quarter of the price, and you control the whole asset.”
When values climb, your return is measured against the full value of the property, not just the deposit you put in. Used carefully, it can turn a modest stake into a meaningful gain. Though, of course, if prices drop sharply, there’s the risk of falling into negative equity.
Another attractive feature of buy-to-let is the sense of control – something many people value.
Mr Mendes said: “A pension leaves your money in the hands of markets and fund managers you’ll never meet. A rental property is something you can see, touch and shape yourself. You choose it, you manage it, and you can adjust the rent in line with the market.”
For a certain type of investor, that “tangibility” is worth a great deal: it offers a degree of protection against inflation that a pension statement rarely conveys.
Further to all this is the ability to leave a legacy – and many people like the idea that property is something solid to pass on.
Mr Mendes said: “You can leave it to your children, move into it yourself later in life, or sell it when the time is right. These are options that can feel far more concrete than a line on a pension forecast.”
However, it’s no longer as reliable as it once was.
The end of the property boom
People in the UK tend to assume they understand property investment because they own their own home.
But with buy-to-let, your income is at risk from everything, ranging from issues with the property to the behaviour of tenants – not to mention legislative and tax changes.
Isabella Galliers-Pratt, senior investment director at Rathbones, said: “The conditions that fuelled the property boom have long since changed. Property is less flexible than pensions or investments, and rental income can be less predictable – particularly as higher interest rates, tax changes and rental reforms have squeezed returns and added complexity for landlords.