Stephen Moss, CEO of property investment search portal, Pring.co.uk, discusses the phenomenon of the rise of the over 55 buy-to-let investor…
A recent survey of more than 10,000 people conducted by Saga Landlord Insurance, revealed the surprising statistic that one-in-ten people over the age of 55 owns a second property and the majority of these have been bought as buy-to-let investments. A third of buy-to-let owners aged over 50 became landlords comparatively recently, within the last five years. That amounts to a growing trend.
There are lots of contributing factors. These are the six most compelling reasons to explain the rise of the Grandlord phenomenon.
- Many pensions have performed abysmally during seven years of recession. People who have paid into pension funds for their entire working lifetime feel deeply aggrieved. Many think they could have managed their savings more profitably themselves.
- The change in the law allowing capital value to be withdrawn from a pension has now given them the opportunity to prove it. To inexperienced investors who are generally not professionally advised, buy-to-let is an obvious, attractive option. Virtually everyone understands the basic proposition of home ownership, rental and rising house prices.
- Growth in property values over the past 35 years, especially in the South East, has given many older people significant equity in their current residential property. This makes the buy-to-let process very simple.
- For many people in this group, ‘downsizing’ has left them mortgage-free ‘empty-nest’ homeowners with sufficient funds to acquire a smaller main residence and have sufficient growth in their equity to buy another property for cash.
- Strategic changes in bank lending policy and the post-recession difficulties of borrowing enough money to get on the housing ‘ladder’ has led tens of thousands of young couples to seek help from parents. They are often renting property bought by their parents (sometimes jointly) in the expectation that, at worst, they will inherit and own the property in due course. Investing in improving these properties at least keeps this refurb expenditure ‘in the family’.
- Many immigrant families who have a cultural inclination to pool their collective earnings, which are then managed by a senior family member, have discovered that their collective family units are in a position to acquire multiple properties, on mortgage, comparatively cheaply, at auction, and build a portfolio for occupation or letting. Many such portfolios have appreciated considerably over the past two decades, creating entrepreneurial buy-to-let property dynasties.
According to Saga, the average property owned by these over 50s, now brings in a profit of nearly £700 a month; a significant contribution to most state or private pensions.
Almost 50% of those covered by the survey had bought property for the purpose of renting it out. 14% acquired it though inheritance, and 7% had purchased a property for a child or grandchild to live in.
Of course, while the simple financial equation of buying-to-let is well understood, as we’re well aware, there’s more to becoming a successful landlord than doing the maths.
Removing bad or obdurate tenants, rent areas, capital gains and other taxation issues and managing the property in advancing years, are just some considerations.
Others will be concerned about the issues thrown up by the national debate on housing. There is a huge, sustained, shortfall in new home building, of some 250,000 units a year, putting further demand on the private rental sector. Any increase in Bank of England base rates could see another million people who currently own their home being forced onto the rental market because their mortgages have become too expensive.
In theory, such base rate changes should increase rental values but the ‘Grey brigade’ worry they have entered a volatile market, susceptible to fluctuations in demand and government policy. The more socially responsible acknowledge that their participation in the market will tend to put an affordable home even further beyond the reach of young first-time buyers.
Clearly there are many considerations for all landlords to make, greying or not.
Stephen Moss is CEO of property investment search engine Pring.co.uk