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industry news
Experts warning retirees over
buy-to-let are ‘misleading’
In April, retirees will have the freedom
to spend their pension in one go
if they choose to, thanks to new
pension reforms being introduced by
the Government.
However some fund experts are
warning retirees not to cash in their
pensions and invest the money in buyto-let property, as they may face higher
tax bills than people who stay with
pensions and ISAs. According to The
Mistoria Group, this is misleading.
Calculations by Hargreaves Lansdown,
the fund shop, show that if a retiree
cashes in a £300,000 pension pot to
buy a property and lives off the rent for
twenty years, he/she can expect to pay
43% more tax than someone who keeps
the money in a pension and draws an
income from it over the same time frame.
However, this comparison is based on
the assumption that the property, ISA
and pension investments all generated
the same returns – 3% a year real capital
growth and 4% annual yield.
According to The Mistoria Group, if
the buy-to-let property investment
was in student accommodation, this
would have significantly outperformed
the funds held within the pension and
ISAs. The total potential returns would
be much higher, making the student
property a more lucrative investment,
despite the tax disadvantage.
According to the firm, HMO (House
in Multiple Occupation) property can
provide an 8% minimum cash rental
yield and a typical 13% total cash yield,
including 5% capital appreciation. The
average gross cash rental yields for the
student property sector in the North
West of England were 13% for the first
three-quarters of 2014, well ahead of
the 6.37% forecast for average student
property yields across the UK, for this
year. What’s more, Mistoria say yields are
6–7% higher on average than the buyto-let market as a whole, which stood at
6.2%* between April and June 2014.
Mish Liyanage, Managing Director
of The Mistoria Group, comments:
“Soaring house prices over the last few
years has meant that the popularity of
residential property as an investment
is growing fast. There are now over two
million buy-to-let landlords in Britain.
“It is estimated that 200,000 people will
cash in their pension from April when
the new pension rules are introduced
and approximately 32,000 (16%) are
expected to use the money to fund a
property purchase, according to Ipsos
Mori research.
“Projections by the Association of
Residential Letting Agents (ARLA)
suggest that every £1,000 invested at
the end of last year using a 75% LTV
mortgage would be worth £2,910 by
the end of 2023. This would provide
an average annual return of 11.3%. The
corresponding annual return for an
unmortgaged investor, they say, would
be a more modest 6.3% (similar to the
rate of return from gilts and equities
over the 1996–2013 period).
“Since the birth of the buy-to-let
mortgage eighteen years ago, student
accommodation has outperformed
all other traditional property assets
and has been the strongest growing
investment property market in the UK. It
has also continued to be one of the most
resilient investment sectors, with rental
incomes and property values remaining
stable, or increasing. The attraction of
the student accommodation sector has
been driven by structural undersupply
and positive rental growth year on,
despite the economic downturn.
“Investing in student accommodation
offers retirees a long-term investment
option, as the property is highly likely
to be in constant demand throughout
the calendar year. Typical rents are
significantly
higher
for
student
properties, than a comparable buy-to-let
property in the same city.”
Beds in sheds landlord ordered to pay £20K
A rogue landlord has been ordered
to pay more than £20,000 after she
was brought to court following an
investigation by Hillingdon Council's
Beds In Sheds team.
Shalini Largey, of West Drayton
Road, Hayes, appeared for sentencing
at Uxbridge Magistrates' Court in
December. She pleaded guilty at an
earlier hearing for failing to comply
with an enforcement notice requesting
her to cease the illegal use of an
outbuilding in West Drayton Road.
The District Judge fined her
£18,000 and ordered her to pay costs
of £2,505. The Council demolished
the outbuilding earlier this year and
is seeking to recover the costs of
the work.
Largey also appeared at court in
18 Landlord & Buy-to-Let Issue 55 • January 2015
October on behalf of McKane Holdings
for similar offences for another illegal
outbuilding in West Drayton Road and
the company was fined nearly £15,000.
Councillor Keith Burrows, Cabinet
Member for Planning, Transportation
and Recycling, said: "I am pleased to
see the courts taking such a dim view
on rogue landlords who think they
can flout planning regulations and
line their pockets at the same time.
I hope this sends out a strong message
to other landlords in this position, we
will find out who you are and we will
take action."