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Retirement Funded By Property Investments Could Be Jeopardised

Buy to let investors reliant on property to fund their retirement could face a ‘pension black hole’ as a result of increasing regulation.

Three quarters of the UK’s private landlords who invested in property solely to fund their retirement are currently considering selling their properties if additional costs levied on the sector begin to narrow their margins.

A number of changes to regulation have impacted the buy to let sector in recent years, including the phasing out of mortgage interest tax relief and increasingly tough criteria becoming placed upon portfolio landlords with four or more properties.

According to research from MakeUrMove, older landlords are disproportionately affected as they do not have sufficient time to make changes before they need to rely on their properties for a retirement income. Landlords aged over 55 were most concerned about making too small a profit on their investment.

In addition, smaller, casual landlords will be most impacted by the rising costs of managing properties. 38 per cent of this type of landlord said retirement was their biggest concern.

Managing director of MakeUrMove, Alexandra Morris, explained: ‘The problem impacts landlords with a buy to let mortgage the most severely, as these additional overheads, combined with recent changes to the private rental sector, mean smaller landlords hoping for a steady income in retirement are worrying that their properties won’t even cover their own costs.’

Eileen Cooper, a landlord with two properties, had been relying on her investments to fund her retirement. She said: ‘We planned to buy another property once the mortgages on our current rental properties are paid off, however we have now decided against this due to the new laws and regulations brought in by the Government, along with the ongoing changes to the tax system, which make it much less viable as a long-term investment. Due to the changes in law and regulation, the time required to manage the properties isn’t worth it.’

Source: Residential Landlord

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3.9 million over 50s plan to use their property wealth to fund retirement

One in five (19%) over 50s are relying on income from property to fund their retirement, OneFamily has found.

This increasing trend is being driven as a result of soaring property prices over the last 20 years, as well as decreasing pension pots and longer retirements.

The UK’s over 50s have particularly benefitted from increasing property prices, now owning an estimated £2.3 trillion of the nation’s total £4 trillion property wealth.

Nici Audhlam-Gardiner, managing director, OneFamily lifetime mortgages, said: “It’s clear from the research that homeowners are seeing their property as a cash cow to fund their retirement, and with the dramatic house price rises we have seen, investing in property seems like a wise option.

“This is particularly true as we see income from pensions, both state and otherwise, beginning to decrease.

“Those not taking advice may often not realise that as well as downsizing there are other options to fund your later years, whilst saying in your forever home.

“We’d urge homeowners approaching retirement to consider all the options open to them, and speak to a financial adviser, as how you fund retirement is one of the most important financial decisions you will ever make.”

With house prices having rocketed by over 300% in the last 25 years and the average homeowner over 50 owning a home worth over £225,000, the number of over 50s using property is set to increase.

While currently one in seven (15%) retirees use property to contribute towards their income, this is set to increase to one in five (22%) over the next decade.

The most common ways people will use property to fund their retirement include a buy-to-let investment, which will account for 33% of the retirement income for those planning to do it.

Some 1.8 million properties will be sold as over 50s downsize, accounting for 28% of the retirement income for those planning to do it.

And the UK’s over 50s will access an estimated £37bn by taking out lifetime mortgages. On average, a lifetime mortgage is taken out for just over £90,000.

Over 50s planning to take out a lifetime mortgage at some point estimate it will account for 28% of their retirement income.

This reliance on property over pensions can be put down in part to people’s perceptions that investing in bricks and mortar is a better bet than pensions.

Over a quarter (26%) of over 50s who have or plan to use property to fund their retirement said that property investments are more reliable than pensions, 27% said their property is worth more for their retirement than their pension, and 15% thought pensions simply can’t be relied upon.

Despite the number of over 50s planning to use property to fund their retirement, many people may not have fully explored the options available to them when planning their finances for retirement.

Only 37% of over 50s have or plan to consult professional financial advice. However, of those that had used financial advice, the vast majority (84%) felt it was useful or essential to their financial planning, particularly when it came to considering different products, such as lifetime mortgages or enhanced annuities, which they otherwise would not have considered (46%).

Source: Mortgage Introducer