Buy-to-let investment vs Pension

Because of the poor performance of some pension investments and the rise of property values over the last 15 years, many people have chosen to invest in property either to supplement their pension income or as an alternative.
A buy-to-let property offers potentiallyTWO income streams.
  1. You receive rent that should enable you to pay off the mortgage with a little left over and,
  2. You also generate profit as the value of your property rises.
If an investor bought a two-bedroom flat for £150,000 with a deposit of £50,000 and the property went up by an average of four per cent a year for 25 years, it would be worth just under £400,000.
By comparison, £50,000 of savings would be worth around £150,000 over the same term at a rate of four per cent.
The difference comes because the rate of return is based on a higher figure for the property, at £150,000, compared to £50,000. The same principle applies when comparing the returns from a buy-to-let investment to growth in a private pension

Drawbacks of Pension Saving

  1. There is no guarantee that your pension savings will grow as outlined. Because you are investing in stocks and shares, the value can go down as well as up.
  2. Annuity rates are falling and the outlook is uncertain. Between 2008 and 2012 annuity rates fell by 18 per cent. This means the amount you get as an annual income reduces because the cost of buying an income for life goes up, so your £60,000 pension pot can buy less and less income.
  3. There is also no guarantee that you will live long enough to enjoy your pension, so you may not get anything, so it is important to nominate your dependents as some schemes pay out a lump sum on your death and most will pay a pension for at least five years in the event of the death of the pension holder.

Benefits of a Buy-to-Let Investment

  1. A buy-to-let investment can provide two separate income streams. One from excess rental income after the mortgage has been paid and the other from the rise in property value* over time.
  2. The property can then be sold and the income used however you choose. This gives the opportunity to invest the money in whatever is the best investment at the time.
  3. Mortgage interest and some expenses in running a buy to let property can be offset against the rental income received in order to reduce the amount of income tax which is payable

If you  would like some impartial advice and further information, please get in touch with us on 02920 489000 or send us a message on the form below.

* PLEASE NOTE: The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser