Fewer UK Landlords Saving for Retirement

A new survey by BM Solutions/BDRC Continental Landlord Panel found that more landlords in the United Kingdom (UK) are using their rental earnings as income rather than saving …

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A new survey by BM Solutions/BDRC Continental Landlord Panel found that more landlords in the United Kingdom (UK) are using their rental earnings as income rather than saving it for retirement. In 2011, the majority of landlords entering the market were doing so to supplement their retirement savings, but it appears that is no longer the case. Analysts say a tightening economy is responsible for the shift, but that landlords still expect a long-term payout as part of their investment. Statistics show that investments of this type average a 6% return over the long term. For more on this continue reading the following article from Property Wire.

A greater proportion of landlords are turning to the private rental sector in the UK to supplement their monthly income, new research shows.

Findings from the latest BM Solutions/BDRC Continental Landlord Panel survey indicate that as income levels remain stagnant and disposable income is squeezed, over 40% of respondents are using the rental income generated to support their monthly expenditure.

This is a marked shift since 2011 where the majority of landlords turning to the rental sector did so to prepare their finances for retirement. This fell from 84% percent in the fourth quarter of 2012 to 78% in the first quarter of 2013.

Of those single property and portfolio landlords surveyed, 78% view their property as a supplementary income to their pension, with seven out of 10 of these landlords actively planning to live off the rental income during their retirement.

Respondents highlighted the importance of a property investment to a landlord’s retirement provision, with property making up 62% of the average landlord’s retirement provision.

A further four in 10 intend to make a decision on their property portfolio dependent on the state of the property market once they reach retirement. Very few, just 4%, of portfolio landlords plan to sell all properties in their portfolio when they reach retirement.

Of the landlords who have previously looked at alternative retirement planning, such as fund investment, a large proportion said they selected the BTL market because they believe investing in property will produce a better return on their money. Other reasons include providing an income, acting as a long term investment and offsetting against a poor pension performance.

Over the past quarter the average rental yield in the UK was 6.1%. In comparison, the average rental yield was 6.2% in the fourth quarter of 2012, compared with 6.7% and 5.9% in the fourth quarter of 2011.

Some 57% of landlords raising rents increased rents when new tenants arrived, and almost the same proportion, 51%, inferred the reason for raising the rent levels was to bring it in line with local prices. The strongest performing region was the North East achieving a return of 7.1%; conversely the weakest area continues to be the Yorkshire and Humberside which report yields of 5.6%.

The proportion of landlords adding property to their portfolio in the last quarter has increased by 3% to 15%. However, landlords are becoming much more selective on what properties to add to their portfolio with the average number of properties being added increasing, from an average of 1.6 in the fourth quarter of 2012 to 2.5 in the first quarter 2013. Looking forward to the next 12 months, just over one in 5 landlords plan to purchase at least one additional property.

‘The squeeze on spending does mean that we’re seeing more landlords using their rental income to supplement the cost of living. However, it’s important that those entering the market continue to see it at as long term investment as well as considering short term requirements,’ said Phil Rickards, head of sales at BM Solutions.

‘It’s good to see that landlords are still looking to add to their portfolios. It’s important to do your homework on buy to let in the same way that you would with any investment, being selective with your property choice isn’t a bad thing,’ he added.

The research also found that 38 % of landlords experienced at least one void period in the past three months, an increase of 4% on the previous quarter. Void periods were greatest in the North East and lowest in central London. Two thirds of landlords attributed the challenge of natural turnover and finding good tenants to replace those vacating properties as the most common reason for unplanned void periods.

The analysis reveals that the average tenant stays in the same property for approximately three years, with one in 10 staying in excess of five years.

This article was republished with permission from Property Wire.

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