Having long provided mega double-digit returns for investors, investment in buy-to-let has outperformed all major asset classes in recent years, but the recent slowdown in the market suggests that could be about to change, which may prove to be bad news for many people who are over-reliant on property to fund their retirement years.
The government’s decision to introduce a number of measures to curb the growth of buy-to-let landlord, including the phasing out of mortgage interest relief and the scrapping the 3% stamp duty surcharge for second homes, has prompted concern that the buy-to-let windfall may be coming to an end, which the National Landlords Association (NLA) believes could lead to the next pension crisis.
Research shows that 77% of landlords – approximately 1.8 million individuals in the UK – confess to being reliant on their residential property investment for their retirement and findings from the Mintel consumer market research report reveals that buy-to-let continues to be viewed as a safe way to save for later life, with almost 68% of people saying it represents a good way to plan for retirement.
But the latest data from the Office for National Statistics (ONS) estimate the average retired household spends £21,770 every year, which leaves a shortfall of more than £15,000 after taking the full basic state pension of £6,359.60 into account.
To make up a £15,000 shortfall per year would require savings in the region of £300,000, which is why the NLA believes so many people have turned to property to provide for later life.
Richard Lambert, CEO at the NLA, commented: “As a consequence of government policy over recent decades almost two million people are reliant on their property to fund their later years, but the changing tax regime will substantially reduce the income they receive from these investments and so compromise the retirement plans of a significant number of hard-working people.
“Around a quarter [27%] of UK landlords are already retired, and 37 per cent are aged 55 or over, so there is a pressing need to tackle these issues without delay”.
The NLA is calling on the government to help those affected adjust their financial plans by tapering the amount of capital gains tax (CGT) landlords will need to pay when they come to selling their property, based on how long they have owned and let it out for.
Lambert added: “Landlords who have invested in residential property for the long term are different from short-term speculators who buy and develop properties, and this should be recognised when it comes to how much capital gains tax they pay when they decide to sell.
“It is not always in the best interests for landlords to continue to manage residential property into later life. A capital gains relief like we propose would provide an incentive to sell, allowing people to sell poorly performing properties and potentially purchase an annuity or invest in more liquid, lower risk assets to fund their retirement instead.”