Retirement: Using property as a pension, the pros & cons


Retirement: Using property as a pension, the pros & consFuelled by low interest rates, on both mortgages and savings accounts, the buy to let mortgage market is booming.

Only last week the Council of Mortgage Lenders (CML) revealed the number of buy to let mortgages being granted is at the highest level since 2008. At the same time, a survey from Barings has shown a rise in the number of people planning to use property to help provide an income in retirement.

And buy to let investing is likely to become even more popular.

Following Mark Carney’s announcement last week that base rate will stay at 0.5% until unemployment falls to 7%, which is likely to take at least three years, many more people will consider property as a way of improving investment returns, rather than see their capital eroded by inflation.

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Furthermore, for people planning their retirement, the yields available on buy to let look very attractive, compared to current Annuity rates, which will also be affected by Carney’s announcement.

So, with interest rates likely to stay low for at least three more years, inflation eroding the real value of savings and Annuity rates remaining stubbornly low, it’s hardly surprising many people are turning to buy to let.

We thought we’d look at some of the pros and cons of buy to let to help you decide whether it’s for you.


Low interest rates This of course has a two pronged effect. Pushing people with savings to consider other options, as inflation erodes the value of their capital and pulling them towards buy to let, as investors can borrow money to fund the purchase at cheap rates.

Low values The average property in the UK is worth 15% lower than at the peak of the last property boom in 2007. With many experts predicting sharp rises in house prices on the back of various government initiatives, such as the Help to Buy and Funding for Lending schemes, now could be the ideal time to buy.

Ready supply of tenants Despite the various schemes and initiatives designed to help first time buyers, it is still hard, if not impossible, for many to get onto the housing ladder, with the main hurdle being the size of deposit needed. This is creating a ready supply of tenants who are looking for good quality rented accommodation, whilst average rents have increased over the past year, improving yields for landlords.

Attractive yields In many parts of the UK it is still possible to achieve gross yields, before tax and costs, of 8% or 9%, even higher in some areas. Although there is significantly more risk with buy to let, compared to a savings account, many investors will accept the increased risk for a potentially higher return.


Finding the right property Thorough research of the local market is key to finding the right property. Not only does it need to be attractive to potential tenants, you should also be looking for capital growth and keep that you might want to sell the property in the future.

Avoiding buying in ‘rental ghettos’, buying the wrong property might make it hard to find tenants or achieve your desired level of rent; void periods are costly and will reduce your yield.

Interest rates Rates are low at the moment, but how would you cope if they were to rise, as they surely will at some point? Would the rent be sufficient to cover the mortgage? Do you have spare capital or savings to cope with interest rate rises or void periods?

Property values Although most of the available evidence seems to indicate property values will rise over the next few years this could change.

As with any investment, the value of a property can fall as well as rise. Between April 2007 and August 2008, figures from the Halifax show house prices fell by 22%. Of course the value of the stock market also fell during this period, but it does disprove the myth that property always rises in value.

Commitment Buy to let investing takes more commitment in terms of time, than any other investment you may make.

Of course you should review your investments and savings periodically to make sure they are working for you, but with a buy to let property you are taking on another home. Boilers break down, houses flood, tenants leave and accidents happen. All of which need to be dealt with, by you if you look after the property yourself or by an agent if pay for your property to be managed; which of course will eat into your return.

Lack of diversification Most people considering a buy to let investment already own a property in the UK, adding a buy to let property could mean your investments are too heavily skewed to one single asset class.

You should consider the balance of your capital between easily realisable Cash, property and other asset classes, such as shares and corporate bonds.

Remember too that residential can’t be held in a pension, which offers valuable tax break and may benefit from a contribution from your employer.

Is now the time to invest in property?

That’s almost impossible to answer in a short article such as this.

However, if you are prepared to accept the downsides which come with a buy to let and your other investments are suitably diversified, now is probably an ideal time. After all, interest rates are low, property prices are expected to rise and there seems to be a ready supply of tenants.

Of course things could change and a buy to let investment carries significant risks, but we have to admit it looks attractive right now.

Are you interested in using property to help fund your retirement?

Our team of Independent Financial Advisers in Nottingham are experienced in developing retirement income strategies for clients the length and breadth of the UK.

If you would like advice on your options call one of our IFAs today on 0115 933 8433, alternatively enquire online or email

The all-important small print

You should remember that the value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

Buy to let mortgages are not regulated by the Financial Conduct Authority.

Your property may be repossessed if you do not keep up repayments on your mortgage.

For providing mortgage advice we will charge an application fee of £300 and we may also be paid a fee from the lender, any fee paid by the lender will be disclosed to you. Alternatively we will charge an arrangement fee of 0.5% of the loan and refund to you any payment received by us from the lender.