'I've not had any problems letting': Two-thirds of investors make buy-to-let their pension

By Jeff Prestridge, Financial Mail On Sunday


Full house: So far, none of Kevin Walter's properties has been empty

Retirement income built from bricks and mortar

Buy-to-let is providing Kevin Walter with the income he needs to enjoy retirement.

And though it is early days, he is convinced buy-to-let is ‘making his savings and retirement money work for him, rather than languishing in a bank’.

Kevin, 54, who lives with wife Lesley, 53, in Wickham Bishops, Essex, sold his motor dealership last year after 35 years in the business.

‘I never had money while I was in business, but suddenly there  I was with pockets of it and I didn’t know what to do,’ he says.

Initially he sought advice from the wealth management division of his bank, but then he saw some of its advisers driving around in Aston Martins.

After flirting with equity investment, Kevin began to look into building a buy-to-let portfolio, attending a seminar held by estate agent Beresfords, one of the biggest independent, family-run estate agents in  the South East.

Today, Kevin and Lesley,  a volunteer with the Helen Rollason Cancer Charity, have eight flats and one house, all in Essex – Barking, Chelmsford, Colchester and Upminster.

Kevin has concentrated on new properties because ‘tenants like them’ and has bought from estate agents who understand the buy-to-let market. He has also outsourced the management of his portfolio.

‘So far, I’ve not suffered any rental voids and I’ve not had any problems letting,’ he says. ‘The income I’m generating is giving me a rental yield before costs  of about 5.5 per cent.’

Steven Bond, managing director of residential lettings at Beresfords, says: ‘It’s essential that potential investors find out all the benefits and pitfalls of buy-to-let – preferably before looking for a property.

‘It’s vital to get answers to key questions – how to search for an investment property, the funding options available and capital gains tax implications.’

CGT is payable on buy-to-let sales subject to the allowance of £10,900 in the current tax year.

Poor interest rates on savings, a generation forced to rent rather than buy, and disappointment with the performance of pension funds are persuading more people to turn to buy-to-let as a key provider of income.

A major survey by The Mail on Sunday among prospective and existing buy-to-let investors indicates most are using, or planning to use, bricks and mortar to generate income rather than capital growth.

They see buy-to-let as a real alternative to a traditional pension and putting cash on deposit where annual interest struggles to beat one per cent.

By comparison, the average yield from buy-to-let is about six per cent. Of existing buy-to-let investors surveyed, 60 per cent are planning to or are considering adding to their portfolios in the next year.


The findings confirm the emergence of buy-to-let as a crucial component in many investors’ portfolios. Latest figures from the Council of Mortgage Lenders indicate that buy-to-let loans account for 13 per cent of the total of 11.26 million mortgages in Britain.

And with the mortgages currently available typically requiring a 25 per cent deposit, and a renewed eagerness among some lenders, new activity is brisk. In the first quarter of this year, buy-to-let lending totalled £4.2 billion – £500 million higher than the same period last year.

David Whittaker, managing director of broker Mortgages for Business, says: ‘Landlords have an increasing appetite for more investments at the moment and with the consistently high income returns on offer, it’s no wonder.

‘They are encouraged by the fact that many would-be home buyers are still struggling to get a mortgage, which has pushed them into the private rental sector.

‘As a result, demand for rental property continues to outstrip the supply, which has pushed up yields. And it doesn’t look as if yields will be going down any time soon, which is good news for investors, who increasingly realise it is the income that counts. It explains why people see buy-to-let as an alternative to paltry savings rates.’

Paul Smith, chief executive of estate agency network Spicerhaart, says: ‘The cultural shift towards renting property continues to gather momentum.

‘What was once seen as the preserve of the young living in our major towns and cities has now become a staple of everyday life among people of all ages. With rents steady and house prices beginning to rise again, total returns for buy-to-let investors are touching almost ten per cent in certain regions – far in excess of what both the stock market and savings accounts can offer. This is all fuelling the continued interest in buy-to-let from investors.’

Our survey revealed that 65 per cent are using or planning to use buy-to-let as an alternative to a traditional pension fund; 60 per cent are investing in buy-to-let as an alternative to low-return cash deposits; and 69 per cent say it is less risky than equity investments.

Experts confirm that it is the hunt for income that is driving more investors towards buy-to-let. David Hollingworth, director of broker London & Country Mortgages, says: ‘There is a clear shift in  the attraction of buy-to-let. It is now about the income that the rental property can generate as opposed to capital growth, which very much became the focus at the peak of the market before the financial crisis of 2008. This shift comes against a backdrop of poor returns on savings and an underlying confidence in property as a long-term investment.’


Kristjan Byfield, director at London estate agent Base Property Specialists, agrees: ‘Even if an investor buys a property and keeps it for five years, in the process achieving a modest net annual rental income of five per cent, this is considerably better than any bank deposit account.

‘And that is even before taking into account any capital growth in the property value – although any future capital growth is likely to be unspectacular, given the state of the economy.’

But buy-to-let is not a one-way ticket to income riches. Experts also say that the findings highlight the need for potential landlords to seek professional advice.

Hollingworth says: ‘One of the more worrying statistics from the analysis is that  little more than half of those surveyed feel very confident they understand the risks involved. This is not something to go into lightly.

The key findings of our survey

Our groundbreaking reader survey on buy-to-let indicates strong confidence in this burgeoning investment sector.

More than a quarter (27 per cent) of investors are planning to add to their portfolio in the next year, while 33 per cent are ‘considering’ further purchases.

Investor focus is currently on the income buy-to-let can deliver. Over the next five years, 85 per cent of respondents think the majority of returns will come from income, not capital growth.

And 65 per cent are using or planning to use buy-to-let as an alternative to a pension, while  60 per cent see it as a better alternative to cash deposits.

Although capital growth opportunities could be hit by falling house prices, 69 per cent of investors believe buy-to-let is less risky than equities.

They are also unperturbed  by the risk of rental voids compromising income. Some  22 per cent say they have suffered rental voids of between one and five months in the past year while 23 per cent have suffered voids for less than a month. They are also unfazed by costs with 47 per cent saying they are ‘not very surprised’ by the costs of running their portfolio.

Of those buying in the next year, 67 per cent will borrow. Some 66 per cent plan to borrow more than 60 per cent of the property value while 78 per cent will buy in the area where they live. Apart from loans, 85 per cent say they will use savings.

A majority, 56 per cent, are ‘very confident’ they understand the risks of buy-to-let, while  38 per cent are ‘quite confident’. Only 34 per cent have taken buy-to-let advice – from the internet, an adviser or an estate agent.

Finally, 88 per cent are happy with the investment performance of their portfolio. Nearly four in ten, 39 per cent, of investors own between two and five properties – compared with 30 per cent who own just one. Of these, 53 per cent of investors own flats while 73 per cent own houses.

  • Our survey is based on 1,065 responses from readers who were asked about their attitude towards buy-to-let. The replies were from existing investors as well as  those looking at buy-to-let.

‘First and foremost, you’ve got to get your choice of property right. Landlords need to look at the property as a strong investment, which could be quite different from something that would suit as a home.


‘Work out your target market – students, for example, or professionals – and then select a property that will consistently appeal to that sector.’

Graham Bates, chief executive of national property adviser Eddisons Residential, says: ‘It’s a wise choice to buy property in an area that you know, which for most people means where they live.’ Encouragingly, 78 per cent of survey respondents said they planned to buy property in their area rather than anywhere else.

There are then the costs to take into account. Chris Norris, head of policy at the National Landlords Association, says: ‘Landlords must build into their business plan the cost of maintenance, insurance, protecting deposits, letting and management agents, legal services, local authority searches, accountants, mortgage brokers, stamp duty and advertising.

‘It is also essential that landlords have funds available for unexpected eventualities, such as a washing machine breaking down or the cost of protecting the deposit of a new tenant. As well as all these costs, there are some 70 sets of regulation that govern buy-to-let.’

Rental voids – periods when a property stands empty – are also a potential problem. Our survey reveals that 45 per cent of investors have been hit by rental voids of up to five months in the past year.

Bates says: ‘All buy-to-let investors should factor rental voids into their calculations. I work on the basis of no less than four weeks in each year.’

Most lenders will insist on a deposit of at least 25 per cent, with the amount of borrowing assessed on rental income covering mortgage costs by 125 per cent. Investors can get an idea of how much they can borrow by using London & Country’s loan calculator at lcplc.co.uk.

Bates says: ‘It’s not a wise choice to borrow too much and it is a little disconcerting that such a high proportion of those planning to buy in the next year – 66 per cent according to the survey – intend to borrow more than 60 per cent.

‘As a general rule, 60 per cent is a good ceiling, with 70 per cent being the absolute maximum loan that you should consider – otherwise it is unlikely that the rental income will support the borrowing costs and the other overheads.’

A final cautionary word comes from Norris at the National Landlords Association. ‘Although property investing is in vogue, it’s crucial that investors are aware of the great responsibility of being a landlord,’ he says.

‘Headline returns may well look favourable, but there are also many factors that can bite and reduce the real net yield.’

The yields where you live

How to enjoy a six per cent income

Assume you have taken out a  £150,000 mortgage on a £250,000 property (60 per cent loan to value).

Your mortgage is with Principality Building Society, which has agreed to lend at 3.29 per cent fixed until July 2015. It will cost £411 a month (interest-only) and under the terms, you are required to generate a monthly rent of at least £936.

Let’s assume you generate £950 a month. So you have employed capital (deposit) of £100,000, which will raise £11,400 rent a year. Total annual income after mortgage interest costs (£4,935) is £6,465 – a yield of more than six per cent.

There are costs to consider, including the £999 arrangement fee, letting agent fees, maintenance and repairs.

The sums look so good only if the property is let all year. Rental voids will reduce income but there may also be some growth (or fall) in the value of the property – although any capital gain at sale will be subject to capital gains tax.

Though rental income is taxable, many associated costs can be offset against this. These include mortgage interest, utility bills, maintenance, council tax, insurance, cleaning and gardening.

'With a pension I never felt in control'

A bad pensions experience convinced Bernie Pike that buy-to-let should form the heart of his retirement planning.

He has put his faith in bricks and mortar and feels he and wife Jill, 60, are very much in control of their finances.

Bernie, 64, lost money in Equitable Life when the mutual insurer nearly collapsed in 2000.

Equitable victims: Bernie and Jill Pike

Equitable victims: Bernie and Jill Pike

Subsequent action by directors to stem losses resulted in a million savers like Bernie having the value of their pension pots cut. Although he now draws a small Equitable pension, his three buy-to-let properties provide the couple with most of their retirement income.

The properties are all in Bicester, Oxfordshire – not far from their home in Thame. Bernie says: ‘I was drawn to buy-to-let because I was a builder. I used to renovate properties and then sell them on. I bought one property to let while I was working but when I retired early and sold my business we decided to downsize and buy a couple more properties. It’s worked really well.’

Bernie initially used a lettings agency to find tenants, but now manages them himself. He has had ‘bad tenants’, but says the downsides are limited. ‘It’s a good way to generate income,’ he says. ‘With a pension,  I never felt that I was in control.’

The comments below have not been moderated.

Be careful, things change. Some time ago a friend of mine reckoned that an equity portfolio of 250,000 pounds would give her an income of 25,000 pounds for life

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If you invested in property years ago, rejoice in your profits. But when even the shoe-shine boy starts talking about something being a good investment, it's time to sell.

Click to rate     Rating   5

b t l must be viewed as a long term investment. i have been self employed 35 yrs, have had every suited idiot in the country trying to sell me pensions, complete rip off. bought my first investment property in 1985, now have 13 which enabled me to retire at 54. b t l can work well , must be viewed long term and you must be prepared to get hands dirty doing maintenance, cleaning etc yourself.

Click to rate     Rating   4

Only one thing will ever influence HP's - Affordability & there aint much of that about! - Phil , Salisbury, United Kingdom, 28/5/2013 23:47 - Phil, as a military man, sure you read the Telegraph? Here's their list of the ten LEAST affordable cities, yours is ranked second (with price v wage ratio alongside) 1. Oxford, South East, 9.66 2. Salisbury, South West, 8.57 3. Bath, South West, 8.23 4. Truro, South West, 8.15 5. Winchester, South East, 8.04 6. Brighton and Hove, South East, 7.67 7. Cambridge, East Anglia, 7.55 8. Chichester, South East, 7.44 9. Exeter, South West, 7.25 10. St Albans, South East, 7.09 - so back to your previous posts, what was your 'apparent' reduction 15/20/30/50%?

Click to rate     Rating   8

Something else to consider is that even Buy To Let mortgages have an expiry date and need to be paid back. It is all very well buying for rental income but what happens when the mortgage period expires and you have to pay back the capital (and you may well be too old to take out another). Your income goes out of the window that's what! If you are lucky you will be able to sell at a profit just before your loans mature but don't expect your profit to earn the same income that you had been receiving from rent. Think very carefully about spending your money folks Buy To Let is not for the feint hearted..

Click to rate     Rating   4

What madness is this - the country mired in debt to allow a few BTL investors to make heaps of cash! What a complete joke.

Click to rate     Rating   2

- Trev , Nottingham, United Kingdom, 28/@@@@@@. Tell me Trev, did Japan have a land extension? Because if it didn't you argument holds no water old boy. Only one thing will ever influence HP's - Affordability & there aint much of that about!

Click to rate     Rating   8

Your 'How to enjoy a six per cent income' made me smile after I had just read your other article today called 'Ultra low interest rates may have to go up far sooner than you think.' Now is a terrible time to start investing in Buy To Let - Rigsby and others that got the timing right may be laughing, but new investors will soon be crying. Your calculations are seriously flawed anyway, a 6% gross yield will be decimated by agents fees, void periods, costs of mandatory gas and electricity checks, the odd new boiler, roof or fence repair, replacement cookers carpets etc. Then of course you have to take income tax of any small profit that is left. Finally don't forget the market is still shaky in many places and capital losses on purchase prices are not impossible...especially if interest rates start to rise. Look at the facts before spending your money folks, Buy To Let is not for the faint hearted.

Click to rate     Rating   26

In people thinking that house prices will start to rise again soon the following needs to be considered - Yes, wages may go up as a result of the quantitative easing and inflation but I think unlikely to be by very much. The deficit needs to be cut which will lead to some job losses, also likely to see further cuts in benefits - possibly including housing benefits - and I expect we will also see increase in taxation. When mortgage lending was in good supply we saw mortgages move from being based on one salary to two salaries - not possible to include any more salaries. Self certification of income encouraged incomes to be overstated and therefore future increases in salaries already built into current mortgages. Lenders have cut back on the amoutn they are prepared to lend. They may be some modest increases but expect property prices to remain flat for a number of years. I would like to see some increases but just do not think likely in the next few years.

Click to rate     Rating   1

FACTS/ Property and land will never be worth nothing. Less land available + more inhabitants = more expensive property. People have to live somewhere be it rented or owned. SPECULATION/ As the economy starts to improve jobs and wages will increase again allowing for an increase in house prices as the people can afford more.

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