Buy to let mortgage deposits could prove hurdle for silver landlords

While more than half of retirees would consider buy to let investments to boost their income, high deposits of nearly £43,000 could prove a difficult challenge to overcome.

According to Kensington, 54 per cent of people aged over 40 years would consider buy to let as an option to increase their retirement pot but high deposits could stand in their way.

Looking at average flat and maisonette prices in England and Wales, the firm found that the 25 per cent deposit needed for a first-time landlord is around the £43,000 mark.

That level of investment could prove too high for many potential landlords; especially those who are not prepared to invest more than the tax-free lump sum that they can withdraw from their pensions.

Going above that level could mean that higher tax rates apply and thus prevent buy to let from being a viable option for new silver landlords.

Keen interest remains despite challenges

Although high deposits could act as a potential deterrent to those contemplating entering the market, Steve Griffiths – Head of Sales and Distribution at Kensington – still described the outlook for the buy to let sector as “bright”.

He suggested that further growth is likely but stressed the need for those interested in buy to let to seek advice from brokers; especially given the high levels of funds needed for a deposit.

According to the poll, potential investors believe not achieving comfortable returns to be the biggest risk relating to buy to let investments using a pension fund.

Almost half (47 per cent) revealed they had fears around not achieving their desired level of income while 42 per cent were worried they may run out of money in their retirement.

A further 25 per cent had concerns about tax implications when withdrawing funds to invest while 21 per cent said they lacked understanding of the regulations relating to buy to let.

More than one quarter (28 per cent) of those contemplating a buy to let mortgage also said they were unsure of how to get started – despite the high number of deals currently available.

Although these fears are well-founded, interest in the sector remains high as buy to let is viewed as an attractive alternative to pensions because it provides a tangible asset that generates income.

The potential to attract strong yields from buy to let is strong with city areas and locations close to universities with large student populations considered some of the safest bets.

It’s also important to remember that buy to let investments are flexible and can provide immediate returns while also existing as a long-term asset.

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