Pension vs Property
Rising mortgage rates, increasing regulatory pressure to improve the EPC ratings of their rental properties, and the prospect of paying increasing amounts of tax under government plans to cut the capital gains allowance have caused many landlords to consider selling.
However, yields in the property sector are still competitive compared to the income that can be drawn from a traditional pension. The average gross yield on a new buy-to-let purchase is 6%, according to a recent survey. By contrast, a typical pension pot in drawdown has a target rate of 4%.
Mark Harris, of SPF Private Clients, said, "Demand for rental property is unlikely to fall anytime soon, with more people having to rent for longer because they can't afford to buy, the need for good quality rental property at a reasonable price is higher than ever...what's more, with a number of landlords selling up because the increased tax and regulatory burden has become too much, demand is only going to grow. If the rest of your investments have been in stocks, bonds and cash, it is good to have some exposure to bricks and mortar."
A fall in house prices could also work in favour of investors who are looking for an opportunity to invest in a rental property. When house prices fall, it pushes up rental yields.
Mr Harris added "Buy-to-let benefits from capital growth over the long term," he said. "This means you can enjoy a regular and fairly predictable income, but also eventually benefit from capital appreciation should you decide to sell up and bank the profits."
As analysts at Deutsche Bank predict that if the American economy enters a downturn, stock markets could still fall a further 25%, workers nearing retirement need to think carefully about where to place their funds in order to maximise their returns during their retirement years.
If you have been considering investing in a buy-to-let property and would like to discuss how the current market will affect your investment, please give us a call on 01698 441327 or send us an email email@example.com and we will be happy to discuss your options with you.