Investing in buy-to-let property is one option for your retirement plan. Paul Johnson of St. James’s Place explains why it shouldn’t be the only option
2020 has blown in the perfect storm for personal financial investment, leaving in its path, a great deal of uncertainty. Not least around retirement planning.
It comes as little surprise then, that property is seen as a safe haven right now.
Property portal Rightmove reports asking prices on residential property rising 5.5% a year, with demand at a six-year high. Frustrated young purchasers are unable to afford a deposit on their own home, rental is the only option for many.
In fact, the English Housing Survey shows a fifth of households are now in the private rental sector – a proportion that’s growing fast. These figures suggest opportunity for buy-to-let investments can generate both a regular income and capital growth over time.
But this is only one part of the story…
Consider, for example, the impact that the stamp duty holiday has had on demand and how the market will look in 12 months’ time when the holiday ends and buyers will have to pay tax again on lower-cost homes?
What if demand subsequently falls back, along with prices? Will buy-to-let still be attractive when tax relief measures on mortgage interest and capital gains are cut?
You get the point. Property, like any investment, can be complex and it’s worth considering other opportunities to hedge your bets and safeguard your future.
Be diverse, be open minded, seek advice
For an investment portfolio to be successful it needs to be diverse. If you’re too narrowly focused and choose a single investment option – no matter how appealing it is in the short term – it could create problems down the line.
Investment also needs flexibility – for example, who at the start of 2020 anticipated the financial impact of the Covid-19 pandemic?
You need the ability to explore alternative options, change direction and to move your money if that’s what works for you. If retirement is looming and you have only one investment option right now, and that hasn’t fared well in the past year, you’re in difficulty.
Planning and tax considerations are long-term keys to investment success, and it’s absolutely not too early for people in their 30s and 40s to get on board.
But for many, the choice may feel overwhelming: stocks and shares, investment trusts and funds, bonds, collectibles, property, ISAs. Diverse investment is one thing, but where do you begin?
This is where an adviser comes in – someone who can understand your financial circumstances and also knows how to make your money work hardest.
They will not only know the differences between investment options, but also have deep knowledge of the sectors – those recent and future tax and regulation changes reducing the profitability of buy-to-let, for example.
They can also customise investment options to suit each client’s personal aspirations and help turn obstacles into opportunities.
There’s great value in a long-term relationship with an adviser – someone who’s an expert in your corner, up to date with new opportunities and in tune with your goals. And the challenges of 2020 have only served to throw those advantages into sharp relief.
If property is your thing, you’ll need a plan
So, back to buy-to-let. It’s not a lost cause, far from it. But expertise is required to optimise an investment.
You need a plan with property, and there are plenty of questions to answer.
Consider how involved you want to be in the running and maintenance of your property portfolio. Is it better to manage a property yourself or use an agent?
Do you purchase one type of buy-to-let, or a range – in a variety of locations, with different types of tenant? Should you buy in an individual’s name or through a company?
And to mortgages… What sort of mortgage is required? That’s a particular challenge for self-employed investors right now, unless you find the right lender.
The answers to these questions come down to your long-term goals. Again, this is where a trusted financial expert adds real value.
They’ll understand what you want in the long-term – continuous income in the form of rent, or long-term gain through capital appreciation, for example – and advise accordingly.
The best buy-to-let investments can still produce annual yields of 5%, according to recent research from global real estate firm Savills.3. But you need the right kind of property for local demand, and to structure the purchase in the most tax-efficient way.
Then there’s the holiday let market. As well as the booming concept of the ‘staycation’, it has some tax advantages not available to buy-to-let investors.
There’s still plenty to play for with property. But remember the golden rule: a diverse range of investments is vital, with an expert who’s up to date on regulation and legislation.
That’s always been the balanced approach – and that’s needed now more than ever.
Paul Johnson is client banking and mortgage manager at St. James’s Place
