The new pension freedoms that came into place in April 2015, giving pensioners over age 55 access to their pension funds, has created a surge in interest in buy-to-let properties. Subsequently, the mortgage market is following up on the increase in demand with a significantly increased number of affordable buy-to-let mortgages.
A new choice for investors
Buy-to-lets have always been considered expensive and limited in the options available to investors. However, from a market perspective, lenders have more flexibility in the rules and regulations around lending as “business lending” is not so heavily regulated by the Financial Conduct Authority (FCA).
Even in the run up to the start of the new pension freedoms, mortgage lenders were creating new mortgage products anticipating that there would be an increase in the number of people looking to withdraw their pension and invest the cash elsewhere for a better return on investment.
According to Moneyfacts, there are now approximately 226 fixed rate buy-to-let deals available to investors in comparison to 162 six months ago and 71 a year ago. This equates to a three fold increase in just 12 months!
What’s the deal?
With a selection of 2 year and 5 year fixed deals available now, it is clear why pensioners are weighing up keeping their money in a pension fund or cashing in a proportion for a buy-to-let, where returns could be higher from receiving regular rental income.
It is important to take into account all factors though. Have a think about these points for starters:
- Many lenders cap the age of the borrower – older borrowers specifically are encouraged to work with a financial adviser to get a wider reach of available mortgage products and take proper advice to plan for retirement.
- Pension savers need to take carefully into account tax planning when withdrawing money from a pension fund – again, a financial adviser can help ensure that all stones have been unturned and there will be no hidden surprises from the tax man.