Naz Financial

A Personal Financial Blog from Naz Miller

“Should I Invest in a Pension or Buy to Let Property?” … (Part I)

buy to let, BTL, retirement investment

The answer to this question is a resounding, ‘it depends…’. There’s no definitive right or wrong here, it depends on individual circumstances, opinions and attitudes. There are advantages and disadvantages of both and that’s what this article is about. I just want to highlight what the questions are that you need to consider before deciding.

This is blog of two halves: this first article concerns Buy to Let property investment. The next one will be about pensions.


Pension vs. Buy to Let: Which is the Best Way to Save for Retirement?


Let’s start by looking at the nation’s attitudes to wealth and saving for retirement. The Government produce a study called the Wealth and Assets Survey, published through the Office for National Statistics (ONS). Their study for the 12 months to June 2017 showed that:

  • 40% of people believe that their workplace pension is the safest option;
  • 30% of people believe that investing in property is the safest option.

(Source: ONS)

With the other 30% offering no strong opinion, it still seems there’s no definitive answer.

So, let’s focus on the main pros and cons of each, as I see them, starting with Buy to Let.


Buy to Let (BTL) Property

BTL, buy to let property investment

We’re a nation of (aspiring) property owners. Historically there have been some major ups and downs in the UK property market, but overall it has grown. Some 49% of people believe that property is the most lucrative way to save for retirement (Source: ONS).

The main advantages of investing in buy to let property are:

You can borrow money to invest in property, so if you can make the repayments, you can benefit from what is known as gearing. It does, however, increase the risk.

Low interest rates right now, so borrowing is relatively inexpensive. If you can get a long term fixed mortgage on your Buy to Let property, then your costs are predictable and should be manageable, even if interests rates rise in the near future.

There’s plenty of advice available, so you can benefit from the experience of others, if you do your homework.

The disadvantages associated with buy to let investments include:

It’s less profitable nowadays thanks to taxation changes. The ability to offset interest payments against rent is on the way out. It’ll be removed completely in 2020 (Source: Gov.UK).

Other taxeslike Capital Gains Tax (CGT) apply to the profits made when you sell. Also, as with a pension, any income received will be liable to income tax.

Risk is a feature of Buy to Let investment. Yes, property can be lucrative, but it can be negative, too. There’s no guarantee of property prices rising, so your options may be restricted just when you want to sell up.

Also, if your tenants don’t pay the rent, if the boiler breaks or the property is unoccupied for a period, your income will stop. You always need to keep money aside to pay bills (including the mortgage).

Lack of asset diversification is an extension of the risk profile of your investment. Putting all of your eggs are into one asset class and one specific region can also be risky. Any fall in property prices will affect your whole portfolio.

It can be time-consuming and stressful, although you can take steps to reduce this. Being a landlord can be demanding; dealing with tenants, issues and everything in between. For a portion of your rental income, typically between 7% and 12%, a landlord’s agent will take this hassle away from you and ensure all tenancy dealings are professionally handled.

That’s it for now. Check out the pensions pros and cons article, next.

For a more detailed chat, give me a call on 07786 653 359.

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Naz Miller

I'm Naz and I'm a Financial Adviser. Prior to working in private practice, I spent 34 years working at Lloyds Bank in Cambridge and surrounding areas. My work has always focused on helping clients achieve their long-term financial objectives.

Glossary of Personal Financial Terms

AAA Rating

In short, AAA ratings (‘triple-A‘ ratings) are the highest credit rating available for an investment, such as a bond or company.

AAA ratings are issued to investment-grade debt that has a high level of creditworthiness with the strongest capacity to repay investors.

Similarly, the AA+ rating is issued by S&P (Standard and Poor) and is similar to the Aa1 rating issued by Moody’s. It comes with very low credit risk and indicates the issuer has a strong capacity to repay.