Is buy-to-let the best way to boost your retirement income as the State Pension age rises?

Could buy-to-lets be the right solution for a tough outlook for State Pensions?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The appeal of the State Pension is set to decline over the long run. The State Pension age is expected to increase to 68 within the next 20 years, while the current ‘triple-lock’ appears to be unaffordable over the long term, given the expected increase in number of retirees.

Individuals may, therefore, be searching for a means of generating an income in retirement so that they are not reliant on the state. Buy-to-lets have generally been popular in the last couple of decades, with rising house prices and falling interest rates holding appeal for investors. However, with a range of tax changes and an uncertain economic outlook, is property really the best means of overcoming the shortcomings of the increasingly unattractive State Pension?

Uncertain future

With interest rates close to their historic lows, they are likely to move upwards over the next decade. Certainly, they could be held back or even dropped in the near term. Brexit could cause challenges for the UK economy and an uncertain future for the economy may mean that the Bank of England seeks to put in place a more accommodative monetary policy. However, with history showing that interest rates have never stood still for too long, a more hawkish monetary policy could be ahead.

This would negatively affect the returns available to investors over the coming years. Those issues surrounding the prospects for the UK economy could also mean that increases in rent may not be as impressive as they have been in previous years. And if the economy experiences further downgrades to its growth outlook, it could suggest that house price growth since the financial crisis may at least take a pause over the medium term.

Changing industry

Of course, perhaps the biggest change affecting buy-to-let investors is the tax paid on investment properties. Many landlords will find that their mortgage interest payments will no longer be tax deductible, while the cost of a buy-to-let has increased due to changes in stamp duty on second homes.

There appears to be a political consensus that the UK faces a housing shortage. As such, it would be unsurprising for buy-to-lets to be subject to further tax and regulatory changes over the medium term, with the government seeking to tip the balance towards owner-occupiers, and away from buy-to-lets.

As such, the prospects for the industry appear to be relatively unfavourable. Certainly, there could be further growth in house prices over the coming years, but owning properties outright may not be the best way to access this from a risk/reward perspective.

Rather, buying shares in housebuilders, REITs or listed landlords could be a shrewd move for investors keen to overcome the declining prospects for the State Pension. Alongside a range of other stocks, they could lead to impressive returns, as well as lower risks from tax and regulatory changes.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »