Pension freedoms are driving the buy-to-let boom | will never contact you by phone to sell you any financial product. Any calls like this are not from Moneyfacts. Emails sent by will always be from Be Scamsmart.

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Published: 21/09/2017

Despite the raft of tax changes implementing the buy-to-let (BTL) market recently – not to mention the new regulations set to come in force in just a few days' time – the sector continues to boom, with the number of BTL mortgages at a 10-year high and rates at record lows. It's little wonder, then, that so many people are turning to the market, and a lot of that could be down to the pension freedoms.

BTL boost

The pension freedoms have given retirees the chance to spend their pension pots as they see fit, and it appears that a lot of people are taking the opportunity to withdraw the cash and invest in BTL instead. Indeed, industry specialist Retirement Advantage is predicting that the over-50s will continue to help keep the BTL market buoyant, with 13% of those aged 50+ saying that they're likely to invest in property after they retire, which could create an estimated 1.3m landlords in the years ahead.

Key reasons for wanting to get in on the BTL action include the prospect of being able to build their capital thanks to rising house prices, not to mention the chance to secure a regular income from rent (50%). Similarly, others are keen to boost their income in retirement (44%), while 36% think that property is a safer place for their money than investing in stocks and shares, and a similar number (35%) also think it provides better returns than leaving the money in their pension or putting it in the bank.

Another 22% have already experienced BTL success so are looking to build on that with further purchases, and 18% said they were interested in the market and would enjoy the process of being a landlord.

New generation of landlords

"The BTL market looks set for a boom fuelled by the pension freedoms and in the process will create a new generation of landlords," commented Andrew Tully, pensions technical director at Retirement Advantage. "As a nation our interest in property remains, despite a cooling of the BTL market following the tax changes."

However, as Andrew points out, there are a number of things that would-be landlords should consider before taking the plunge. "First and foremost, a pension is designed to provide an income in retirement, which is usually done either through drawdown or an annuity," he explains. "People will need to think long and hard before withdrawing significant sums of cash from their pension, as any withdrawal over the first 25% is subject to income tax."

Then there's the income side of things to consider, as the rent you can earn from the property may not be enough to provide the income you want, particularly if you're thinking of paying someone to manage the property on your behalf.

"With most people's main asset being their home, the old adage of [not] having all of your eggs in one basket has never been truer when it comes to pensions and property," concludes Andrew. "As ever, seeking professional financial advice is key to avoid potential bear traps and make the most of the pension freedoms."

So, while the thought of becoming a landlord can be tempting, this isn't a decision to be taken lightly, and anyone considering it should make sure they get the right advice. This applies to mortgage advice, too: if you've decided that BTL is the way to go, you need to find the best buy-to-let mortgage deal possible, and ideally you'll want to speak to a mortgage adviser who can help.

What next?

Find out more about the pension freedoms and the risks involved

Still want to be a landlord? Compare the best BTL mortgages to see if there's a deal to suit


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