Why buy-to-let isn’t my pension

A picture of buy-to-let houses

Investing

Julie Hutchison

2nd December 2013 at 11:24am

When does an asset become a liability?

This question came into an investment decision I’d been mulling over for a while.

Buy-to-let: asset or liability?

I was seriously considering buying a second property, which I’d rent out on short lets for most of the year. It was in an area I knew well in the north of England. After a great deal of research online, I got in touch with estate agents. I visited various properties for sale. My spreadsheet told me the number of weeks I’d need to rent out, to break even.

I’d done the maths and could just about make it work, while interest rates on the buy-to-let mortgage were low.

But I didn’t go ahead. Why?

Single asset stress

I worried about weather damage. What if the water pipes froze? How long could I afford to pay the mortgage if the property lay empty for a while?  Could I really trust a local agent to deal with the administration and care about the place I’d bought? I could see stress ahead. Stress I could avoid.

So, I dropped the idea, after enough research and reflection changed my mind. What had at first seemed a potentially valuable asset became a potential liability in my mind.

I also noticed there were lots of properties for sale in that area which had been on the market for a while. It struck me I might not be able to sell quickly if I ever needed to.

Bank of England intervention

I already felt I’d made the right decision about not going for a buy-to-let. And an announcement by the Bank of England in November further backed-up my thinking. The Funding for Lending Scheme is being diverted to focus on smaller businesses, away from mortgages. That’s because the Bank of England and the Chancellor believe that activity in the housing market is picking up

This could mean interest rate rises, up from the historic low of 0.5%. This would affect how affordable a mortgage would be. I already have one mortgage, and I’m happy not to have a second. My buy-to-let mortgage would have cost me more, but would I have been able to charge more rent to cover it?

Spreading eggs across several baskets

In the end, it just felt too risky, to concentrate such a portion of my investable cash into one thing.

For the time being, I have a range of different ways I’m investing for later life. I’ve realised I much prefer things I can invest in with more freedom to buy and sell when I want to. I can cope with the ups and downs of the stockmarket far better than the worry of flooding, a wind-damaged roof, or increasing mortgage payments.

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