The buy-to-let market has been booming in recent years but is it a good way to boost your pension?
I've been quite surprised recently to find that at least half a dozen friends of mine have ventured into the buy-to-let market.
These aren't rich people either. They're ordinary folk who are taking advantage of the growing equity in their homes to re-mortgage and use the released funds as a deposit on a one or two bedroom flat to rent out. The tenant pays the mortgage for them. The reason, in most cases, is that they've completely lost faith in pensions.
According to the market research company, Datamonitor, in the second half of 2002, gross buy-to-let lending totalled £6.7 billion - up from £4.1 billion in the second half of 2001. Business is booming it seems but is this a good thing?
Over the weekend the Sunday Times wrote an article saying people shouldn't rely on buy-to-let to finance their old age. I agree that it shouldn't be the only thing you rely on but it's worth considering bricks and mortar as part of a portfolio if you can afford it.
Interestingly, there are rumours floating around that the Inland Revenue is considering allowing people to invest in residential property using a self-invested personal pension (Sipp). At the moment you can use the money in your Sipp to invest in commercial property with the rental income being directed back into the fund. And if you sell the property within the Sipp you avoid capital gains tax although eventually, you do have use the funds to buy an annuity.
But if the Government is going to allow people to do the same with residential property, it'll make buy-to-let even more attractive.
Of course it's not much fun for would-be first-time buyers who are seeing property prices spiral beyond their reach. But, as they have to live somewhere, they rent instead. Landlords are reporting lower yields on their rental property but as far as my friends are concerned, as long as the mortgage is covered they're quite happy. At the end of the day, if it all goes according to plan, they'll have a fully-paid for asset that they can use to provide them with an income in their old age.
Find out more about Sipps, Remortgaging and Buy-To-Let for Retirement.
