Younger savers, who at one time may have invested their money in the stock market and more traditional saving schemes, are turning their back on financial advisers and becoming more likely to choose to inject their capital into buy-to-let property. The stock market has not stood up well during the financial crisis, so is now seen as a riskier place in which to invest money, whereas buy-to-let property appears a much more reliable investment. In fact, young investors are now seeking to use buy-to-let property instead of investing in a pension fund – not surprising if they have seen family members lose money invested in pension funds. The continued demand for properties to rent, thanks to high house prices and difficulty in obtaining sufficient deposit to obtain mortgage finance, is keeping rents high – in August the average cost to rent a property in England and Wales increased to £734 – so investment in property through buy-to-let is certainly an attractive option.
Ludlow Thompson, a letting agency based in London, has told the Financial Times that 15% of the landlords that they provide a service to are in their 20s, which is 5% higher than before the financial crisis. A lot of their younger landlords tend to work as bankers or traders, so are well aware of the instability of the stock market and will often see their annual bonus as the ideal deposit for a buy-to-let mortgage.
However, in becoming a landlord young investors need to remember that they are taking on a big commitment. They need to ensure that their property is well maintained and that it has the necessary safety features and checks carried out. It is also essential that their tenants’ deposits are protected in a government-approved scheme and that a proper tenancy agreement is drawn up, which their tenants will need to sign. To protect their investment, landlords should consider taking out professional landlord insurance, which will provide cover should the building or contents suffer damage.
While it is understandable that young people are less likely to take risks when it comes to investing their money – having seen what they have with the financial crisis – a reluctance to invest money in equities could impair the growth of savings over the long-term and have a negative impact on corporate growth, so could affect everyone.