The Daily Telegraph
Pensioners pivot to property funds
Home ownership among over-65s shoots up, with many seeking buy-to-let income over pensions
OVER-65S earned £10billion from snapping up more buy-to-lets amid signs pensioners are pivoting from pensions to property.
More than 483,000 households over the age of 65 in England drew an income from residential investments last year, according to analysis by estate agents Savills. The research reveals the number of homes owned by over-65s rose from 1.3million to 1.5million in the last three years, with properties now worth an estimated £437billion in total.
The properties add £378billion to the net wealth of pensioners after outstanding mortgage finance is accounted for, the group estimated.
More than half of landlords have used buy-to-let properties as a long-term investment to contribute to their pension, the English Private Landlord Survey found.
However, this trend is tipped to accelerate. Around 473,000 people between ages 55 and 64, who already own buy-to-let properties worth a total of £9.3billion, are expected to rely on residential investments in retirement.
One in 10 of those approaching retirement said that property would be their biggest source of income in retirement, the Savills survey found.
Lucian Cook of Savills said older landlords had accumulated significant housing wealth through their investments and were in a good position to weather the economic storm as a result.
He said: “Many are proclaiming that the golden age of buy-to-let investment is over because of increased regulatory requirements, a higher tax burden and the prospect of further increases in the cost of debt.
“But it is set to play an increasingly important role in providing pension income, with many landlords, who were at the forefront of the buy-to-let explosion of the noughties, now hitting or approaching retirement age.”
Landlords have been forced to sell up this year following the Government’s buy-to-let crackdown, which has created a supply crunch that has pushed up rents. This follows warnings that older workers are sleepwalking into a retirement crisis, as millions of 58- to 76-yearolds are not saving enough, according to major pension provider B&CE.
British workers need to save enough in their pension to afford a retirement income that is equivalent to two thirds of their working income, the Pensions Commission warned in 2004.
But two thirds of people are not putting enough aside to meet that target, analysis of Office for National Statistics data by B&CE found.
Industry pundits have warned recently that stalling house prices and tax changes might make property investment less lucrative over the next 20 years.
Property prices have started to drop after months of record-breaking rises.
This coupled with the removal of tax reliefs on mortgage interest is expected to make buy-to-let investing far less profitable in the coming years.
Opting for investment in property instead of a pension could cost as much as £21,901 in missed returns, one analysis suggested last month.
Financial adviser Netwealth compared what could happen to £55,000 invested into a pension or into a buy-tolet property.
After 20 years, the pension would be worth £170,254 – assuming 5 per cent annual returns after fees – compared to £148,353 from the property investment, including capital growth and rental income. In total, the pension returned 210 per cent over two decades, 34 percentage points more than property, according to the analysis.
Meanwhile, buy-to-let yields have been falling, with 63 per cent of local authority areas in England, Scotland and Wales down in the three months to August. Yields, which are calculated as rental income as a percentage of house price, offer a way to understand how profitable a buy-to-let property is.
The areas hit hardest were in Scotland, the Midlands, Yorkshire and the South.