Here's why buy-to-let property shouldn't be your only retirement plan

It’s understandably tempting to seek a life-raft when financial waters are choppy, with further storms on the horizon. 

So, it’s little wonder property appears a safe haven right now. 

The Rightmove website reports asking prices rising 5.5% a year,1 with demand at a six-year high. Buy-to-let looks healthy, thanks to frustrated young purchasers unable to afford a deposit on their own home. And the English Housing Survey shows a fifth of households now in the private rental sector – a proportion that’s growing fast.2

But first impressions can be misleading – or, at least, show only one side of the story. 

For example, how wise would investing in bricks and mortar seem in a year’s time when the stamp duty holiday ends – meaning buyers have to pay tax again on lower-cost homes? What if demand subsequently falls back, along with prices? Will buy-to-let still be attractive when tax relief measures on mortgage interest and capital gains are cut?

You get the point: property, like any investment, can be complex and it’s worth considering other opportunities to hedge your bets and safeguard your future.

The case for diversity, flexibility and advice

“For an investment portfolio to be successful it needs to be diverse. If you’re too narrowly focused and choose a single investment option – no matter how appealing it is in the short-term – it could create problems down the line,” advises Tony Clark, Senior Proposition Manager at St. James’s Place Wealth Management.

“Investment also needs flexibility – for example, who at the start of 2020 anticipated the financial impact of the COVID-19 pandemic? If retirement is looming and you have only one investment option right now, and that hasn’t fared well in the past year, you’re in difficulty,” he adds.

For Clark, planning and tax considerations are long-term keys to investment success, and it’s absolutely not too early for people in their 30s and 40s to get on board.

But there’s so much choice: stocks and shares, investment trusts and funds, bonds, collectibles, property, ISAs. Diverse investment is one thing, but where do you begin? 

This is where an adviser is invaluable. They will not only know the differences between investment options, but also have deep knowledge of the sectors – those recent and future tax and regulation changes reducing the profitability of buy-to-let, for example. They can also customise investment options to suit each client’s personal aspirations and help turn obstacles into opportunities.

“There’s great value in a long-term relationship with an adviser – someone who’s an expert in your corner, up to date with new opportunities and in tune with your goals,” says Clark. And the challenges of 2020 have only served to throw those advantages into sharp relief.

Taking advantage of expertise to optimise property investments

But what about that property investment idea? It’s not a lost cause surely? Far from it – but again, expertise is required to optimise an investment.

“You need a plan with property, and there are plenty of questions to answer,” explains Paul Johnson, Client Banking and Mortgage Manager at St. James’s Place.

“Is it better to manage a property yourself or use an agent? Do you purchase one type of buy-to-let, or a range – in a variety of locations, with different types of tenant? Should you buy in an individual’s name or through a company? What sort of mortgage is required – that’s especially challenging for self-employed investors right now, unless you find the right lender,” he notes.

Again, this is where a trusted financial expert adds real value. They’ll understand what you want in the long-term – continuous income in the form of rent, or long-term gain through capital appreciation, for example – and advise accordingly.

There’s still plenty to play for with property. The best buy-to-let investments can still produce annual yields of 5%, says estate agency Savills.3 But you need the right kind of property for local demand, and to structure the purchase in the most tax-efficient way. 

Then there’s the holiday let market. As well as the booming concept of the ‘staycation’, it has some tax advantages not available to buy-to-let investors.

“Don’t discount property, but remember the golden rule: a diverse range of investments is vital, with an expert who’s up to date on regulation and legislation,” explains Johnson.

“That’s always been the balanced approach – and that’s needed now more than ever.” 

Looking to build a diversified portfolio, focused on the longer-term, that effectively balances property with other types of investment and your own personal goals? A St. James’s Place Partner can help. Just ask.

The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are dependent on individual circumstances.

The home on which the mortgage is secured may be repossessed if repayments are not kept up to date on the mortgage.

Sources:

1Rightmove house price index, October 2020
2English Housing Survey 2018-2019, Ministry of Housing, Communities and Local Government
3Savills Residential Market Report, September 2020