Buy-to-let investors are getting older, according to new information that shows there was an increase in the number of buy-to-let mortgage applications from 65 to 75-year-olds in 2022.
Specialist broker Commercial Trust Limited found over-55s now take into account nearly 40% of all buy-to-let purchase and remortgaging activity, and the share of buy-to-let mortgage applications from 65 to 75-year-olds specifically has witnessed an increase in excess of 5%.
A combination of pension freedoms, a subdued property market as well as an increased quantity of buy-to-let products for older people could make property seem like a tempting option, but is purchasing buy-to-let inside your retirement a real good idea?
Which? weighs up the benefits and drawbacks.
Why are more retirees purchasing buy-to-let?
Despite news that the quarter of landlords are looking to sell a minumum of one property within the next Twelve months, buy-to-let could be a way of creating a decent yield.
Several factors mean conditions are particularly favourable for older investors.
1. Pension freedoms mean funds are readily available
Since the introduction of pension freedoms in April 2022, individuals with defined contribution (DC) pensions have had the opportunity to use their pots nonetheless they wish.
There are four main options on what you can do together with your DC pension, including buying an annuity, using pension drawdown, cashing the whole pot in or taking lump sums.
Each has its own benefits and drawbacks, but if you need to put down a first deposit on a buy-to-let property the chances are you'll either need to money in the whole pot or take a lump sum – and both of them are prone to create a tax bill, as you'll only get 25% of the whole pot or lump sum payment tax-free.
2. Falling property prices mean you could get a bargain
In an industry where property prices are falling month-on-month (there is a drop of 0.6% in February, based on the Land Registry House Price Index), it could be a great time to grab a bargain.
However, with capital growth so low, you will need to concentrate on the potential yield you can make money from letting your property.
Research finds that landlords across Britain made an average gain of lb79,770 in 2022 – and in London this rocketed to lb248,000 – based on data from international estate-agent chain Hamptons International.
However, bear in mind that property prices, growth and yields can differ dramatically across regions, towns and even in the same street.
To help investigate the area you’re considering investing in, try our area comparison tool, and you'll discover vital information about areas before you purchase.
3. Lenders increase borrowing to older investors
We recently wrote about Santander extending its buy-to-let mortgage criteria to higher suit older borrowers – but many other providers had already done exactly the same.
Analysing the latest Moneyfacts data, we found that of the 2,151 buy-to-let products currently available on the market, 52% of the deals have a maximum age after the term of 85 or over, and 19% don't have any maximum age limit whatsoever.
4. Home loan rates falling due to Brexit uncertainty
Since 2022's EU referendum, financial advice website Moneyfacts data indicates the average rate on the fixed-rate buy-to-let mortgage has came by nearly half a percent, that could do well news for potential investors.
| Date | Average buy-to-let fixed rate |
| June 2022 | 3.71% |
| April 2022 | 3.26% |
However, while fixed rates are currently low, costs could rise in the near future when the Bank of England base rate increases from the current degree of 0.75%.
As the terms and results of Brexit are still unknown factors, it's difficult to say whether rates of interest will rise or fall – but any base-rate rises can lead to mortgages increasingly expensive.
If the only income you're counting on is your pension, you may want to consider whether you will still have the ability to afford a buy-to-let mortgage if the takes place.
Should you invest your pension in property?
While we’ve outlined reasons why why the present market could present financial opportunities for older buy-to-let investors, letting a property is no longer a surefire method of making a return.
Buy-to-let investors are facing several challenges, such as mortgage interest tax relief cuts, the 3% buy-to-let stamp duty surcharge and the upcoming tenant fees ban which kicks in on 1 June.
All of these could lead to slimmer income, possibly causing you to more vulnerable to losses.
David Blake, principal adviser where? Mortgage Advisers, says: 'As with any buy-to-let investment, it is important investors have contingency funds in position should the property isn't let for time.'
There are a number of additional factors to consider before investing your pension:
You also needs to get clued up on items like landlord insurance, along with other landlord responsibilities for example EPC rating rules, safety checks and maintenance.
