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The pitfalls of the buy-to-let boom

buy to let boom

April 6th, dubbed pension freedom day, passed quietly as most of us enjoyed Easter Monday in peace. Pensioners did not rush to release their cash, start spending wildly and no run on Lamborghini’s has been reported.

It’s possible, of course, that many people are still going to splash out on big ticket items, and we may indeed see the retired racers arrive eventually. However, according to initial research, certain (more realistic) sectors will see a boom in the coming months.

One area that is predicted to do well on the back of the pension freedoms is the buy-to-let market. According to a recent survey conducted by specialist mortgage lender, Kensington, over half of retirement savers are considering investing or are already invested in buy-to-let properties. The freedom of the new pension planning environment will likely cause many people to put their money into an investment they believe to be sound, i.e. property.

Interest rates remain stubbornly low and the fact that property is continuing to increase in value countrywide makes a buy-to-let boom a possible result of Chancellor Osborne’s pension freedoms. However, before diving into the buy-to-let market head first, there are some serious drawbacks to consider.

The Downsides

buy to let


For those who wish to enter the buy-to-let market and envisage a new life as a property magnate all funded by the fruits of their pension pot, many may be in for a shock when they realise just how much tax they will have to pay to withdraw large amounts.  Prospective buyers will want to put down a large deposit, some will even consider buying outright, but only 25% of your pension pot can be withdrawn tax-free. Some people who have been a lower rate tax payer for their entire lives could find themselves paying at a higher rate of tax if they withdraw their entire pot at once. Withdrawals will be taxed as income so the 40% bracket will click in for anyone earning more than £42,285 a year. In order to put together enough money to be able to put down a sizeable deposit, pensioners will have to take large withdrawals and will have to swallow the bitter pill of a hefty tax bill.


By transferring your savings from your pension pot into a buy-to-let property, you could be opening up a Pandora’s Box of stress and hard work. We all feel that retirement should be the time we take our foot off the gas, relax and enjoy life, but becoming a landlord can often detract from the fun of post-work life. Even finding a suitable property to invest your hard-earned cash into can feel like a full-time job, and once you have made the choice the fun really begins: building insurance, energy efficiency rules, maintenance, re-decorating, finding suitable tenants and plethora of other administrative tasks and general headaches.

Loss of Flexibility

Transferring money from a pension pot into the bricks and mortar of a property may seem like a wise move; moving your liquid cash into something real, tangible and valuable. However, by purchasing a property, your assets lose their flexibility and your money is quite literally locked in the property – you lose liquidity. Historically, property has been a very sound investment, but without a liquid reserve of cash that can be used for maintenance costs, missed rent and other costly events that every landlord will be more than familiar with, costs can soon spiral out of control. With the vast majority of your cash tied up in the very home you are having to fix back up, financial stress and strain can quickly return.

Becoming a landlord in the buy-to-let market can be a rewarding experience, both personally and financially; however, as with all major financial decisions, people should take care, do their research and only continue when they’re sure that their decisions will be financially beneficial.