The buy to let market is dominated by investors seeking a property pension, according to new research.
Just under half of buy to let investors (46%) are pouring cash into property because they are disappointed with the returns from pensions and equity investments, says a survey by Sequre Property Investment.
The company has identified four types of property investor –
- Pot hunters – the investors dissatisfied with other investments
- Protectors – The 22% of property investors looking to protect their wealth and save for their children by putting savings into an income generating asset
- Warriors – The 13% of buy to let landlords who are young professionals who want to build a portfolio. Typically, they are looking for higher yield property in the North
- Chieftains – The 11% of buy to let investors with established portfolios. Typically, these landlords stay in a full time job and manage property worth between £1 million and £3 million
Yields are falling
The latest buy to let mortgage data from bank and building society trade body suggests investors are still in love with buy to let, but recent tax changes increasing stamp duty and reducing mortgage interest relief for high earners still have to work through the market.
But is buy to let still a good investment?
Although house prices are increasing, mortgages are harder to find and at a lower loan-to-value against property prices.
Yields are also down. Yields are the return on investment a landlord receives with a formula that looks at how much rent is earned against the value of a home.
Conventional financial wisdom would suggest cashing in a pension to invest in buy to let is not a wise move.
With yields close to returns from shares, pensions and ISAs, the future of buy to let is uncertain due to government moves to make property taxes higher than those for other forms of investment.
Property also takes time to sell, making investment illiquid, while holding a large amount of savings in one asset class is also risky if house prices start to fall.
Graham Davidson, managing director of Sequre takes the opposite view.
“The common thread that links the findings is investors’ desire to seek out a prudent investment with strong returns.
“Bricks and mortar continues to out-perform many other more volatile investments, providing stable returns with the added benefit of owning a tangible asset, unlike stocks and shares. This is particularly important for older people who are looking to hand down their investment to family and loved ones.”.
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