invest in UK property

Invest in UK property to boost your retirement income

A new government report has revealed that the majority of the UK’s landlords choose to invest in UK property with the intention of it forming part of their pension pot.

The UK property market is famously robust, and is the target of investment from both national and international markets. Ongoing price rises, even during slower times, have made it a popular asset among investors who want to cash in on capital gains later in life.

This is alongside the money earned through rental income, if an owner decides to invest in UK property in order to let it out to tenants or as a short-term or holiday let.

The latest English Private Landlord Survey, commissioned by the Department for Levelling Up, Housing and Communities, has found that this trend is still dominant among investors. More than half (54%) see their properties as “a long-term investment to contribute to their pension”.

When looking specifically at buy-to-let landlords who invest in UK property, this rises to 58% who intend to keep their property or properties until retirement age.

A thriving sector

Bricks and mortar in the UK has performed well as an asset class across almost every area of the UK in recent years, even throughout the pandemic. In March, house prices rose by around 9.8% annually, according to Office for National Statistics (ONS) data, bringing them to around £278,000.

There have been some reports of landlords leaving the sector in the past couple of years, despite demand from tenants remaining extremely strong. However, between 2008/09 and 2020/21, the number of privately rented properties in the UK rose by 45% to around 4.4 million households.

The largest proportion of individual landlords (43%) own just one rental property, says the report. Many of these could be made up of ‘accidental landlords’ – those who inherit a property, or are in a position to keep one when they move house and end up renting it out. This represents around 20% of tenancies.

Almost a fifth (18%) of landlords own five or more properties, which makes up 48% of tenancies. It is likely these landlords invest in UK property to make up all or most of their income.

Hargreaves Lansdown senior pensions and retirement analyst Helen Morrissey says: “Strong house price growth in recent years has led many people to declare their property is their pension and this can be shown in the huge number of landlords who are looking to use their property portfolio as their retirement income.”

Invest in UK property for the long-term

While ‘flipping‘ property – where you buy at a discount, potentially refurbish and then resell shortly afterwards – can often turn a profit, this method of investment is much more high-risk. It often also doesn’t benefit from the natural capital appreciation that takes place over time.

Those who invest in UK property for a long-term investment often see the greatest gains over time. There are also a number of costs involved when buying and selling, such as stamp duty and legal fees, that cut into the profit with each transaction.

Morrissey from Hargreaves Lansdown warns that, while the market has remained buoyant for several years, there are no guarantees, pointing out that you could find a property hard to sell, especially if you are trying to sell quickly.

Things to consider

Some investors plan to keep their buy-to-lets to provide an ongoing income from the rent during retirement. This can be a positive strategy for many, but there are things to bear in mind, says Morrissey.

“If you plan to be a landlord into your retirement, then you will need to factor in the work being a landlord entails and if you aren’t able to do it then you will need to pay someone who can. It is important to take a long-term view of these costs when deciding to take the leap into becoming a landlord.

“Some may find pensions to be inflexible – money invested cannot be touched until at least the age of 55, but it is also important to remember that contributions benefit from tax relief and investment strategies are well diversified over geographies and sectors.

“This can offer real peace of mind when investment markets are volatile. Not being able to touch the money invested also means it benefits from long-term investment growth which can have a significant impact on your retirement income.”

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