Are you ever ‘too old’ for buy-to-let?
Knee’s forecast may not come to pass; predictions of how many will withdraw all their cash in one fell swoop vary, with some commentators believing the sizeable tax liabilities those who do so face as a palpable disincentive. However, pensioners who do choose to get involved in the buy-to-let market face another preventive measure – the lack of available buy-to-let mortgages for those aged 60 and above.
Owner-occupier mortgages for older generations can be tricky to obtain. “Some lenders have limited the maximum age to which they will lend,” says David Hollingworth of London & Country. “That means in many cases the mortgage term can only run to 75. However, other lenders are more flexible, and may offer lending to a maximum of 80 or 85.”
However, the buy-to-let mortgage market is not at present subject to the same stringent regulations as the residential sphere; there are lenders prepared to offer buy-to-let mortgages to older landlords.
Nevertheless, Hollingworth notes that such lending is not without caveats. “I’d warn against trying to borrow too much of a property’s value,” he states. “Rates – and availability – tends to be best when borrowers can offer deposits of 25 per cent, at a minimum.”
Mark Harris of SPF Private Clients has a few lender recommendations for pensioners old and new who would like to get involved in the buy-to-let market. “Aldermore, Kent Reliance and Precise Mortgages all allow borrowing up to the age of 85. There a few regional building societies who do not have an explicitly stated maximum too, but this doesn’t mean they won’t limit a term or decline an application due on the grounds of age.
“Getting a buy-to-let mortgage is much easier for an older borrower than obtaining a residential loan, because the income of a property should not fall when the landlord retires, as it might if they were leaving their day job,” Harris concludes. “Proving retirement income can be tricky but projecting rental income should be much easier.”
Ultimately, the aforementioned tax liabilities may prove too severe a deterrent for retirees. 25 per cent of a pension can be withdrawn tax-free – any further money will be taxed as income, proportionate to the size of a withdrawal. Depending on how much money is taken by a retiree, funds may be taxed by as much as 40 per cent – meaning a large withdrawal could have a seriously deleterious impact on one’s pot. Furthermore, residential property cannot be held in a pension wrapper – thus, any capital gains made are likewise taxable.