How is an ageing population affecting the buy-to-let market?

POSTED: 29th October 2015
IN: Landlord helpful guides

People born during the ‘baby boom’ period after the Second World War are set to reach their late 80s by 2035 - and are more likely to reach that age than the previous generation. As birth rates increase and the older generation’s longevity improves, the UK’s population doesn’t just continue to grow, it is increasing at an unprecedented rate.

A lot of this growth is due to the ageing population; at the beginning of the 20th century, those aged 65 or over made up 5 per cent of the population, and in 20 years’ time, they will make up nearly a quarter, according to the UK’s Office for National Statistics (ONS).

The ageing population is having a significant impact on the buy-to-let market. But how?

An increase of ‘Silver Landlords’

Buy to let experts are predicting a steep rise in the number of ‘Silver Landlords’; those who have reached retirement and have opted to invest money in property. This is largely due to new pension laws that came into action earlier this year, which means people are no longer required to convert their pension pots into annuities. This pension ‘freedom’ has led older people to consider the buy-to-let market, as they deem it a steady investment for their retirement years.

The surge in house prices over recent years has led to the older generation accumulating a personal property fund. According to an over 50s survey by Progressive Property, 69 per cent of respondents believe property is a safe investment, with 33 per cent of respondents already having invested.

These pension reforms have gone some way to radicalise the property industry according to the ONS, with many over 55s on the brink of retirement looking to the sector as a way of keeping them in the lifestyle they are accustomed to once they reach retirement age. There has been a shift in attitude from those nearing retirement about how they will get the necessary income once they stop working - hence the growing tendency to consider buy-to-let as a viable income option.

Affordability for first time buyers

Currently, the residential property sector could be considered to be an older-buyer’s market. Increased demand for housing stock among the UK’s ageing population is likely to be a contributing factor in pricing first time buyers out of the buy-to-let market. In turn, this increases demand for rental property among younger demographics.

Likewise, the buy-to-let mortgages sector, in which buyers are typically required to provide a higher deposit than for residential mortgages and face more fees, also lends itself to an older demographic, who typically have more to invest than their younger counterparts.

And first time buyers could struggle to keep-up with the over 55s in the future; according to the Retirement Housing Report published by Knight Frank, older households will represent half of all household growth by 2026.

Restricting re-sales

The UK’s ageing population is increasingly asset-rich but cash-poor. A pocket of this group with money tied up in property are choosing to downsize; however, there has been a lack of market movement for downsizers in recent months. As some older property owners struggle to secure a mortgage, usually due to their age, it locks an ageing population into houses bigger than they need and so restricts the supply of larger properties to those people with growing families who are looking to move up the housing ladder.

In Knight Frank’s 2014 report, it was revealed that in the UK, around 1 per cent of the UK’s population aged 60 or over live in retirement communities, according to data from Housing LIN. This compares to 13 per cent in Australia and New Zealand and 17 per cent in the US.

The country is known to be somewhat behind on recognising the importance of retirement villages, for example, which have been popular for decades in countries including Australia and New Zealand. Without these developments in place, the ageing population could be impeding property re-sales.

Increasing demand for housing

Over the past decade, there has been an unprecedented demand for housing, with household growth rates exceeding population growth rates. Future household growth is likely to continue outstripping population growth, as there is a trend towards smaller households, with the aging population a contributing factor in this.

By 2019, private renting will account for two-thirds of all households where the age of the household reference person is under 35, an increase of 566,000 to 2.8 million, according to estimates from Savills. With house prices predicted to continue rising, and the new pension freedoms sending more money into the buy-to-let market, it is a property area that continues to sustainably grow and remain strong.  

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