Research from Platinum Property Partners, the specialist buy-to-let business, shows a striking and worrying lack of planning and financial understanding of the £1.25 trillion buy-to-let property market in the UK.

More than nine in ten (93%) of buy-to-let property investors in the UK have no five year plan for their investment, despite the main motivation for investment being to secure retirement income.

The research, which included analysis of DCLG and ONS data as well as a survey of over 500 UK buy-to-let investors, shows that only half (50%) of those who have a financial interest in the buy-to-let market have a written business plan. This means that £625 billion of buy-to-let property has no clear investment strategy. Yet, the main objective of those investing in buy-to-let is to secure retirement income (stated by 50%).

The overall value of private rental property across the UK currently stands at £1.25 trillion, with 1.9 million private property investors owning an average portfolio worth £657,726. With fewer than one in ten investors stating they have a five year plan for their investment, this leaves the UK’s private rental sector with £1.16 trillion worth of investment property with no strategy.

Steve Bolton, Founder and Chairman of Platinum Property Partners, said: “Buy-to-let is the biggest single investment most people make other than their family home, yet people are not actively managing it. When the scale of the sector is considered, the lack of financial understanding and planning is staggering. There are few other investments you’d be comfortable making without at least an idea of how it was going to work for you so the fact so many property investors are leaving their investment to chance is remarkable.”

The Accidental Buy-to-Let Market

According to the research only three in ten buy-to-let investors deliberately set out to purchase a property, the majority of investors became accidental landlords through circumstance. Two fifths (41%) entered the market simply because they had a property they could rent out. The most typical property rented out is one that buy-to-let investors used to live in (40%), while 13% started via a property they inherited, and 15% purchased a new build off-plan.

The most common type of property owned by investors is a family-sized home (54%), followed by a two bedroom flat or apartment (33%) – typically not the most suitable properties for delivering a strong income. Only 4% of investors own multiple occupancy homes for working tenants despite the fact these are the properties which tend to produce higher income.

Trusting to luck: market understanding severely lacking among property investors

Less than half of investors (43%) say they fully understood what they were doing when they entered the buy-to-let market, while only one in five (18%) did a significant amount of research before proceeding. One in ten investors say they trusted to luck when entering the buy-to-let market, having done very little research at all.

This lack of awareness has continued into the financial management of their property investment with nearly a fifth of investors (17%) having no idea of the value of their gross yield. With an average investment across the UK of £657,726, this is a surprising oversight for such a large sum.

Tony Bennett, Managing Director of Platinum Property Partners, said: “It’s not unusual for people to suddenly become accidental investors through inheritance or changes of circumstance and so they’re unlikely, at this point, to have a full understanding of the market. They certainly won’t have had a chance to put together a plan of action. But that doesn’t mean they should continue in the market without nailing down the direction they want their high value investment to take - particularly if they want to maximise the income they’re able to generate from it.”

Long-term returns and Retirement Planning

Half of buy-to-let investors say the reason they are involved in the market is to secure retirement income, while a third (36%) want to secure a regular income to live off sooner. However, of those looking to secure their retirement income, two fifths (41%) are planning to sell the properties when they reach retirement. This suggests that a large proportion will not maximise the income potential of their investment.

Currently, 53% of investors use their buy-to-let income to supplement their main source of earnings, however, a quarter say that the income only covers the management costs and paying the mortgage.

Steve Bolton, concludes: “Taking a laid back attitude to buy-to-let investment and simply hoping that the value of your property will rise is a gamble. By neglecting the income generating potential of buy-to-let, investors are ceding control of their investment and leaving it to the market. By thinking about the regular income, what sort of property to buy in which location and taking steps to understand the numbers, the UK’s BTL investors stand to gain a lot more from their investments.

“And with the changes announced in the Chancellor’s recent budget to the way in which people can access their income for retirement and a growing proportion of people turning to the buy-to-let sector, the need for appropriate advice, planning and support will become increasingly important in the years to come.”

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