From April 2015 some of the biggest changes we have seen to the pension system have come into force.
These changes are making it possible for people to take pension benefits from personal pensions without having to buy an annuity. Put simply, people will be able to withdraw what they like from their personal pension.
Commentators are expecting many investors to be tempted to look into the buy-to-let property sector. Property solicitor, Katy Kernahan, explains why:
Investor interest appears to be on the rise
The buy to let sector suffered substantially at the beginning of the financial crisis in late 2007, early 2008. However, the buy to let sector appears to be recovering with buy to let homeowners now accounting for one in seven of all mortgage loans. This equates to around 1.6 million current buy to let mortgages, which is a substantial increase.
There are some key features which have led to a growth in rental demand within the UK. Firstly, population growth is rising and it is estimated by 2032 that the population will be around 72 million. There has also been an increase in single occupancy dwellings, which coupled with population growth has added pressure to the need for at least 200,000 plus properties to be built each year, which will only just meet current demand.
This means that much of the existing housing stock may prove unaffordable in terms not only in terms of price, but due to new affordability tests in respect of mortgage lending, future occupants face an uphill struggle to obtain a mortgage on their own.
There seems to be a growing trend for tenants being happy to stay put. Renting a property provides flexibility and due to more stringent affordability checks in the mortgage lending sector; tenants avoid extensive investigations and the need to provide evidence of their income stream. In addition, tenants find it extremely difficult to build up a substantial deposit to purchase a property. For many tenants it is difficult to save any money and for those who do save, it is estimated that it takes on average at least four years to build up the required deposit – even taking into account government backed schemes, such as the Help to Buy.
In May 2014 it was estimated that by 2032 35% of households will be made up of privately paying tenants. Coupled with the social renting sector this would equate to 50% of all homes being tenanted rather than owner occupied.
It is also the opinion of landlords who were surveyed in 2014 that tenant demand was growing, with just 3% of landlords describing demand as on the decline.
Seek expert advice
If you already own a buy to let property it may still be worth speaking to a mortgage broker to discuss potential re-financing options.
For those thinking of entering the buy to let property sector for the first time it is of paramount importance that you seek advice not only from a solicitor but also an independent financial advisor who will be able to advise you of any potential tax implications as a result of releasing money from your personal pension.
There are also regulatory considerations that need to be taken into account when becoming a landlord in terms of the state and condition of the property and how it is managed. The pros and cons of whether you manage the property yourself or pass it on to a letting agent need to be considered.
It is advisable to consider issues such as the location of the property, your typical tenant (whether you are looking to rent a property to a family or students for instance) and what kind of insurance requirements you have.
Finally, it is crucial that the cost/benefit analysis is worked out in terms of expected rental income versus the costs of acquiring and maintaining the property and servicing any loan. This should take into account things such as service charges, ground rent and the possibility of rental free periods between tenants.
Importantly, when buying any buy to let property there is no guarantee that it will be let continuously nor that the rental income will be sufficient to meet the outgoings. There is also a risk that if property values decline this will eat into any profit generated by the property given that property values can go up as well as down.
If you are considering purchasing a buy to let property and require legal advice then contact Katy Kernahan on Barnstaple 01271 349926 or email her at [email protected]
Please note that Slee Blackwell Solicitors are unable to provide taxation advice and if you are concerned about any tax implications, you should speak with an Independent Financial Advisor before agreeing a purchase.