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Pensions windfall could see buy-to-let boom

Brokers believe the pension reforms announced in the Budget could trigger a surge in buy-to-let investment and an increase in the number of borrowers paying down interest-only mortgages.

From next April, savers aged 55 and above will be able to withdraw their entire pension pot as a cash lump sum, with the first 25 per cent exempt from taxation and the remainder taxed at the saver’s marginal rate.

The minimum age people can access their entire fund will rise to 57 from 2018, then be linked to rises in the state pension age from 2028.

Your Mortgage Decisions director Dominik Lipnicki says: “This is a potentially dangerous policy because people are saving to have an income over 25 to 30 years and I think we will see a large number of interest-only borrowers using that cash to pay off their mortgages.”

“Without a doubt we will see a boost in buy-to-let investment as a result of the pension system changes. It is clearly a good option for someone to be able to use the cash they have saved over their working life to earn a rental yield that outweighs normal savings rate.”

John Charcol senior technical manager Ray Boulger says: “There is a definite logic to savers using their pensions windfall to invest in property. House prices will continue to rise despite the efforts to boost supply, and I think those who are smart enough to save a decent amount over their careers will also see the sense in property investment to gain better yields.”


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There are 8 comments at the moment, we would love to hear your opinion too.

  1. Good news for for the airliners, cruise companies, sports/vintage car companies, golf & angling clubs. Bad news for young families, FTBs, movers and not forgetting NI contributors left to pick up the cost down the line and disenfranchisement of access to proper meaningful independent retirement planning advice. Well thought out decision George & the Bullingdon boys!

  2. House prices rising constantly? Maybe more demand but CRASH! The more concentration of cash in any asset – reminds me of the Tech boom… will people never learn? Nothing can go up inexorably for ever…. and the more the piece of elastic is stretched, the more it snaps back…..

  3. House prices rise because…
    1 UK – There is a finite amount of land to build on.
    2 UK – Population is rising steadily year on year.
    1+2 = reaonably inelastic demand then add in general inflation.
    Check out the cost of your own house (or equivalent) 25, 50 and 75 years ago.
    In 1964 my parents bought a 7 bedroom victorian detached house in Devon for £5,000 – Lucky to see the same place now for £700,000.
    Over the long term property is an excellent investment and will remain so for decades. Meteoric profit is different. tThere is a risk that there will be a snap back such as we have just had if you take a short cycle period. However in today’s market prices remain significantly higher than they were 20 years ago, which proves that property remains a good long term investment, in spite of cyclical adjustments.

  4. Dear Martin

    I’ve heard all the arguments before but please watch-out, that’s all. For me, on the investment front my money is spent on better value and more flexible investments (though i do own my own home and several special properties, not ‘standard’ houses and which I bought in the last crash – when there was still significant demand, no more land and so on…..).

    In fact, just bought another from receivers…. only 25% less than its price ten years before and the owners must have spent 50% again on improvements to it…. yes, these things can happen and higher interest rates could see a surge of selling as holding costs rocket and rentals don’t cover BTL borrowers’ costs. After Barton Biggs… ‘expect the unexpected’ – just like annuity providers yesterday I suppose!

  5. Eggs and basket…..

  6. I would like to meet the mortgage broker who thinks that moving money from a tax efficient pension fund to a heavily taxed buy to let property is a good idea.

    It just proves one thing that MMR should be extended to buy to let properties so that mortgage brokers and estate agents need to justify their advice to consumers.

    The problem with the UK economy has always been lack of control on property prices thus the increase in rules around mortgage advice it just needs to be extended to include buy to let.

    Personally, I think this is going to have a real negative effect on buy to let properties due to the fact, why would you buy a property that has tax on any spare income, capital gains tax on sale, stamp duty and potentially inheritance tax.

    Against a pension fund that has tax relief on contributions, virtually tax-free growth and now you can access any amount of money that you wish.

  7. I think one if the reasons why btl is popular is that the British people inherently trust property as an asset, and have a mild distrust for any investment based on the stock market, even if it defies logic.

  8. You’re right Paul and Peter. However, ‘that’ doesn’t make investing in an expensive asset right and one wonders how much the buyers’ propensity or capacity for loss has been considered by the adviser (Estate Agent?) when taking a 75% BTL mortgage.

    Can you imagine the outcry suggesting a ‘Buy to Stockmarket’ investment with a 75% loan but that is probably a very good idea now (and was five years ago), lower risk, better net yield, more manageable, infinite diversity possible, far lower costs, better tax advantages.

    Perhaps with property we’re talking about the next miss-selling scandal but don’t the buyers only have themselves to blame when it all goes wrong but we’ll all have to shoulder the colossal bad debts as the banks have over-extended themselves in residential property (again).

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