Using buy-to-let to boost your retirement fund

With demand for rental properties increasing alongside monthly rent costs, investing in buy-to-let properties can help to bring some extra cash to your retirement fund. According to ARLA Propertymark, in April 2018, 26% of tenants experienced rent hikes, while the number of prospective tenants was up 9% month-on-month.

Matt Stevens is Director at mortgage consultancy company, The Mortgage Genie. Here, he explains why you should consider buy-to-let as a way of seeing you through retirement. Why choose buy-to-let?

Buy-to-let can be an attractive option for many property investors, mainly due to the impressive returns possible. Renting out a property you own means you’ll be able to meet your monthly mortgage repayments as well as gaining income. This is particularly worthwhile if you can take advantage of a low buy-to-let mortgage rate, as your repayments will be lower, meaning you can pocket some extra cash.

With savings accounts offering low rates, usually below the rate of inflation, investing in buy-to-let is one of the smartest and most secure ways to protect—and grow—your pension fund.

You don't have to sell your home to raise the funds for a buy-to-let property: it’s possible to free capital from existing properties with a bespoke remortgage rate. So, rather than having money tied up in your home, you can make it work harder as a buy-to-let investment.

Many buy-to-let investors are turning to the North and Midlands for a better deal, and therefore higher returns on their investment properties. The current hotspots range from Manchester as the UK’s second largest city, to Leeds, with predictions of rising house costs lending more scope for hiking up rent prices.

Other cities to watch include Liverpool, which has a demand for longer-term rentals, reducing the likelihood that your property will be empty for prolonged periods, while Birmingham’s housing is expected to continue increasing when HS2 is implemented. With its S1 and S2 postcodes yielding some of the highest returns on rent, Sheffield is one of the most highly demanded Northern cities, which will only grow with the re-development of the Park Hill estate. Pick your location wisely and watch the returns rise!

Rates

You’ll need a buy-to-let mortgage, rather than a residential one. The rates for these mortgages will fluctuate depending on how risky the loan is, the deposit put down and your personal credit rating.

Typically, you’ll need to get enough rent to cover at least 125–150% of your mortgage, so charging a rent that’s about 25–30% higher than your mortgage payment is recommended. You’ll also need a bigger deposit than you would for a residential mortgage—usually between 25–40%.

Mortgage types

Interest-only mortgages are a popular choice for those wanting a short-term investment, allowing you to maximise your monthly income. However, repayment mortgages are more of a long-term investment, requiring you to make larger monthly payments on the interest as well as the amount borrowed. Once you’ve paid it off, you’ll own the property outright and can get a lump sum when you sell it (assuming you're in positive equity).

Your retirement is supposed to be downtime after the years of hard work you’ve put in, but that’s not to say you can’t continue adding to your retirement fund. With the possibility of equity release and specialised mortgages for this, there is plenty of help to give you a head-start on securing buy-to-let properties.