Property Monitor - The Rise Of The Pensioner Landlord

23rd April 2015

Imminent pension rule changes in April are expected to affect the rental property landscape, to be compounded further next year by the Chancellor's recent Budget announcement that from 2016 up to 5m people who have purchased an annuity will be able to access their pension in cash. The impact on the property investor market - at both the amateur and professional levels - is as yet unknown, but market speculation is rife and all eyes will be on it in the coming months.

Shawbrook Bank is a specialist lender whose clients primarily comprise experienced property investors and professional landlords. Stephen Johnson, MD of its Commercial Mortgages division, shares some insight into how he sees the upcoming changes affecting the property investor market:

"At the moment, investors can often obtain better returns on property compared to other investment opportunities such as stock market returns, or savings accounts. The rental market is growing due to an imbalance in housing supply/demand, a lack of social housing and tenants being unable to afford to get a foot on the property ladder because of stricter regulation, especially in London and the South East. Recent Council of Mortgage Lenders figures showed that the number of buy-to-let mortgages in January was up 12% year on year, and 6% since December. It therefore seems likely that some of those who can access their pension pots once the changes come in will choose to manage their own risk and invest in property."

When it comes to pension reforms, what is the likely impact on the buy-to-let market?

"The majority of those affected by the pension rule changes are likely to be first-time landlords. They will be looking for simple, single properties, which will be straightforward to manage, but no buy-to-let endeavour should be underestimated. Successful property investment is a specialist skill – not only the ongoing management and maintenance of a property, but also finding them and getting the right deal. Although these new landlords will increase competition in the market, the experienced investors will always have the advantage. Ultimately the disruption to the market will be limited."

What do experienced BTL property investors look for when making a purchase?

“For experienced property investors, buying-to-let is viewed as a business venture. To make a return quickly, they might buy a property, refurbish it to add value and sell within the space of six months. If they wish to hold on to the property and let it after carrying out refurbishment work, they'll look for a property which will provide them with strong rental income and an uplift in capital value. The experienced investor will also consider the more complex property types, such as HMOs and multi-units on one freehold, as well as the more straightforward single properties.

“By contrast, amateur landlords take a completely different approach. They will typically view a buy-to-let property as their nest egg and look for a steady return over a longer time period. They are likely to be more risk-averse than their professional counterparts and will feel more comfortable purchasing a simple single property either in their local area or an area they know well.”

Learn from the professionals

Those wishing to invest in a BTL property for the first time should proceed with care. Lisa Williams, an experienced property investor as well as the founder of Keys Mortgages, a mortgage brokerage based in Coventry, shares her top tips:

1. Do your research
There is plentiful advice available on becoming a property investor and much of it can be obtained free, for example on forums or by attending events or reading books. There's no need to spend thousands.

2. Don't rush in
It's better to wait for the right property and deal than fall down on your first. If you are underprepared you may not achieve the best outcome.

3. Don't be afraid to sell
You should sell regularly rather than retain your property at all costs. Having liquidity is essential for any business and in this case equity is vanity. I recommend a keep one, sell one strategy.

4. Do value your team – your solicitor, broker and accountant in particular.
Do not try to do it yourself and do not chop and change. You should take your time to build the right team, pay them on time and talk to them regularly and in unison - the overlap between all three should not be underestimated. Between them they can and should save you far more than they cost you.

5. Don't worry about what anyone else is doing
Most of what people say is not true and you should stick to your own plan. It is your money and life after all and your strategy should aim to fulfill your hopes and dreams, rather than anyone else's.

PHOTO
Apartments in Thurso, Caithness.