Buy-to-let: The retirement product
John Phillips is financial services director at Kinleigh Folkard & Hayward
As curious as it may sound, buy-to-let may rue the demise of the annuity industry.
As a market, buy-to-let has been buoyant for some time and as the lending market continues to come to terms with the Mortgage Market Review, it is likely buy-to-let will command a larger slice of the lending available as it remains outside of the new stricter stress test rules.
In the longer-term however the execution of the annuity industry may mean regulation of buy-to-let is back on the table. With few viable alternatives there is a very real possibility that many older investors may enter the first-time landlord market in order to find the income streams, not to mention the capital appreciation that annuities cannot provide.
At face value, buy-to-let in a buoyant market may provide too tempting an opportunity for an ageing population with no other realistic offers of investment and income. This would substantially increase the number of one or two property landlords in the market and, according to the Association of Residential Letting Agents’ Survey of Residential Investment Landlords, this figure is already 40% of buy-to-let landlords.
Without a successful alternative to annuities, buy-to-let may fill some of the gap and effectively become a surrogate annuity product for consumers. Annuities are regulated sales. The entrance of many older first-timers would, I believe, raise the spectre with the regulator of consumer detriment. If the number of one or two property landlords exceeded 50% it would be surprising if they were not required to receive an advised sale, with lenders and mortgage advisers needing to provide audit trails to prove they have offered a solution, let alone a product that is appropriate to the customer’s circumstances.
The value of buy-to-et lending is still significantly lower than house purchase loans but with few other retirement products available that can match the returns and capital appreciation that can come with good investment property, prepare to see buy-to-let flourish even if as a regulated entity.