Under new pension freedom reforms, people aged 55 and over can access as much of their savings from their defined contributions pensions as they want. The changes, which came into effect on 6 April 2015, mean people can now take a lump sum payment and there are estimates that more than one in ten people are intending on cashing in their entire pension pot, with 16 per cent planning on reinvesting the cash into property.
There is a general expectation among those in the industry that the changes to pension rules will result in an increase in buy-to-let landlords, which will make it even harder for first-time buyers to get on the property. According to the Mortgage Advice Bureau, people searching for buy-to-let mortgages typically have £99,914 in equity to put down on the property. Not only does this level of deposit make it difficult for first-time buyers to compete, but it is also likely to drive up property prices.
It’s easy to see how such activity could well fuel a continuous cycle of behaviour in the market; young people rent as they try to save enough to get on the property ladder, while in the meantime the older generation invest in buy-to-let properties, driving house prices up, and preventing the next generation from buying.
Even before the changes to the pension rules, the rise of the so-called ‘amateur’ landlord has been apparent. In July last year, the National Landlords Association released figures which showed part-time landlords made up more than 70 per cent of the sector – its highest ever level. And with part-time landlords earning an average of £31,000 a year, it’s clear to see how such a venture could seem attractive.
But is it all that simple? Reports that some mortgage lenders are now offering anyone up to the age of 70 a 35-year-old loan – meaning they wouldn’t pay it off until they were 105-years-old – have been met with some concern and there are also further significant tax and financial consequences of people cashing in their pensions to become a buy-to-let landlord.
And as any seasoned landlord will tell you, managing properties and tenants isn’t always that straightforward. Being responsible for repairs and maintenance, chasing tenants for late payments and managing void properties are just a few of the challenges buy-to-let landlords can expect to encounter.
Property is considered a fairly safe bet when it comes to investing money, but buy-to-let landlords need to be aware that the market could turn against them. House prices can fall and interest rates can rise. What’s more, the legal responsibilities of landlords are changing all the time. From adhering to the Energy Act 2011 guidelines to ensuring properties meet new safety legislation, landlords need to keep on top of what is required by them and take the necessary steps to make sure they are operating legally and fairly.
*Rachel Haymes is Head of Conveyancing at Ratio Law