Generation landlord: is it time to invest in a buy-to-let?
08-16-2014
As fears of pension shortfalls increase, more investors are putting their money in buy-to-let properties, says Caroline McGhie
Julia and Gerald Herbert, who have bought two flats to let out
Pension pots: Julia and Gerald Herbert, who have bought two flats to let out Photo: Jay Williams
By Caroline McGhie
The great generational divide of the moment is around property wealth.
While the younger generation struggles in the rented sector, many believing they will never be able to buy, their elders fret about the cost of care and the inadequacy of their pensions. As a result, the older generation is piling into the buy-to-let market to create much-needed income for the future.
Generation Landlord is emerging as a whole new property-owning class. At the end of successive house price booms, the older generation has often accumulated swags of property equity. “About 83 per cent of those who own their homes outright are aged over 55 and nearly all the housing debt is owned by the under-55s,” says Johnny Morris, head of research at Hamptons International. “The rise in the older generation buying properties to let is a new phenomenon and is sometimes motivated by helping the younger generation as well.”
Gerald Herbert, a freelance graphic designer, and his wife, Julia, an estate agent, both in their late 50s, wanted to make up for a predicted shortfall in their pensions. “We hadn’t moved for 23 years, so we had some equity,” says Herbert. So last year they sold their family home in Maidenhead, Berkshire, for £820,000, paid off the mortgage and other bills, and searched the country for a house under £325,000. They came across a pretty cottage in Martock, Somerset.
“We had £200,000 left over, so we are using that as a deposit on two flats in Ocean Village at Southampton and getting buy-to-let mortgages,” he says.
“It is a gamble. But our generation is disillusioned with the pension system and the Government, and we have to be resourceful because no one is going to look after us apart from ourselves.”
This trend is likely to grow. About 78 per cent of landlords see their investment in buy-to-lets as a pension, according to a report by auctioneers and property consultants Allsop and market researchers BDRC Continental. This figure may well rise if proposed changes to the pension system, which would allow the over-55s to take lump sums on retirement, come into force. “Property as a pension takes on a new dynamic given the planned relaxation of maturity options,” says Mark Long, BDRC director.
The survey of 2,203 landlords showed that the private rented sector was the new panacea to the pension gap. It is, said the report, “a viable long-term investment because of stable rents, increased income security, capital gains and long average tenancies”. It found that tenants stayed on average just over two-and-a-half years.
Graham Winn, who works in IT, and his wife, Julie, in their early 50s, are also trying to create their own fund for their retirement. “We looked at our pensions and wondered what we were going to do,” says Winn. “We had £500,000 to £600,000 in the bank, which was not keeping up with inflation.”
The couple started small, by buying a new flat in Bushey, Hertfordshire, about 50 yards from the railway station. “It takes 17 minutes by train into Euston, so we thought it was a good buy. The agents said people were knocking on the door wanting to rent, so we bought a one-bedroom flat and it has been let ever since.”
There is no stopping them now. The flat used up half the money they wanted to spend. With the other half, they have bought a second flat off-plan in London Square, Ruislip. “It has done fantastically well, the builders are local and it is a more ambitious scheme with a fantastic finish, underfloor heating and economic to run,” says Winn. The rental for each flat is £1,000 to £1,100 a month. “We will put the money away and hope to buy another one in the future,” he says.
Home owners throughout the country are getting in on the act. Strutt & Parker has had a sharp increase in buy-to-let in the past two years. In spring 2012, 2.3 per cent of its buyers in Chelsea went for properties to let; this year, the figure is 26.2 per cent. “There has been a real surge among older people wanting to buy to let, not looking for the increases in capital value but driven by the need for rental income or cash flow,” says Zoe Rose, head of lettings.
Peter Ford, chairman of developer Rangeford Holdings, says home owners should think about their income after they retire. “Traditional pension saving is less popular since final-salary pensions are no longer available, and as the value of property rises it is hardly surprising that more people are investing in it,” he says. “Savvy 40- and 50-somethings should be looking to buy-to-let investments that they can rent out until they are ready to move in and start a new phase of life themselves.”
His company has developed Wadswick Green, a group of slick city-style flats with floor-to-ceiling windows, near Corsham in Wiltshire, to suit the aspirations of these mature buyers. He believes those who buy to let now and move in later when age catches up with them will be ahead of the game.
FOR SALE: BEST BUYS FOR LANDLORDS
1. Outer London: Eastcote, Hillingdon, development of one- two- and three-bedroom flats, starting at £299,995 for one bedroom, by Eastcote Tube (Piccadilly and Metropolitan lines, 29 minutes to central London). Sales 0333 666 2535; London Square
2. Get ahead of the game: Wadswick Green, near Corsham, Wiltshire, for the over-60s, where a one-bedroom flat costs £285,000, a two-bedroom flat £345,000 and a three-bedroom flat £490,000, with concierge and car parking included. Sales 01225 805737;
3. Cambridge: two-bedroom, two-bathroom flat in the Marque, the tallest residential tower in the city, £500,000, Savills 01223 347092; or Bidwells 01223 841842
4. Inner London: one-bedroom flat in Morton Road, Islington, £495,000, Cluttons 020 7354 6666
5.Southampton: two-bedroom flat, Hawkins Tower, Admirals Quay, £350,000, Savills 02382 092152