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More Britons look towards buy-to-let

More Britons look towards buy-to-let

Category: Buy To Let

Updated: 13/11/2014
First Published: 13/11/2014

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The buy-to-let market in the UK is riding high at the moment with confidence levels soaring. As a result, nearly half of British homeowners in a recent survey are harbouring an ambition to become a landlord in the next two years, a dream that could be realised thanks to the new pension freedoms coming into force next year.

However, according to the latest Buy-to-Let Index from the Bank of Ireland UK, while many would-be landlords understand the benefits of buy-to-let, few understand its tax implications.

Consumer confidence and pension freedom

Buy-to-let loans increased by an impressive 32% year-on-year in August, according to figures released by the Council of Mortgage Lenders (CML), and consumer confidence is also on the up, with 91% of those surveyed by Bank of Ireland UK believing that they can afford their mortgage repayments. Confidence about the strength of the buy-to-let market has also risen, with the index reporting a positive score of 60.8, compared with a score of 58.7 from the first wave of research in June.

Clearly, the buy-to-let market is experiencing a great deal of buoyancy, and it is this quality that is likely to attract the investment of those approaching retirement. Thanks to the changes to annuity rules and the other pension freedoms that will come into force in April 2015, retirees in the UK are set to flood the buy-to-let market, boosting its growth even further.

According to the index, 49% of those questioned said that they were interested in becoming landlords in the next couple of years, with around one in six stating that they were "very interested". Another 29% said that they were already planning on using a lump sum from their pension to buy a rental property. Those living in London were particularly property-hungry, with 47% declaring that they were intending to purchase property with their pension savings.

Missing knowledge

However, the index found that while many Britons were keen on creating or expanding their property portfolios to fund a comfortable retirement, fewer than 30% of respondents fully understood the implications of income tax, capital gains tax or inheritance tax. This is a worrying finding, as it could mean that a rental property does not provide the desired income for retirement and it could also impact the fortunes of beneficiaries when the estate is valued after death.

Be advised

Investing in a buy-to-let property may have the potential to secure you excellent returns, and it could help feather that retirement nest, but jumping blindly onto the buy-to-let bandwagon without getting proper financial advice could mean that you are caught out by the taxman.

"Our research has identified a massive knowledge gap in the area of buy-to-let mortgages, which is particularly concerning as the market is currently experiencing growth," commented Mark Howell, commercial director of Bank of Ireland UK mortgages. "It's important that people seek financial advice on tax matters before making big financial decisions or investments, like buying a property to let."

So, if you fancy yourself as a future landlord, make sure you talk to a professional. An adviser can explain the ins and outs of the tax system and prepare you for any deductions. This way, you can purchase your new property with a realistic idea of the returns you are going to get – and the costs.

If you want to get the best deal from your rental property, you are also going to need the best possible mortgage. To check out the best deals and find the mortgage that suits your ambitions, take a look at our top deals. We have also gathered together a chart of the best mortgages for first-time landlords, so if you are new to the market, make sure you have a look.

What next?

Find the best buy-to-let mortgage deal

Check out the top first-time landlord mortgages

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.