Pension Reforms = Buy-To-Let Opportunity?

As you may have already heard, this month will see one of the most radical changes to pensions in almost 100 years. If you switch the television or radio on today you will no doubt notice the plethora or adverts from all sorts of players in the money industry, all seeking to earn fees/commissions from your new found ability to release your pension funds.

As of last Monday, if you are over 55 and have a defined contribution pension suddenly it appears that the world has become your oyster! Chancellor George Osborne said in his Budget: "This government believes in the principle of freedom. Individuals who have worked hard and saved responsibly throughout their adult life should be trusted to make their own decisions with their pension savings".

Now, instead of being being forced to purchase an annuity, you can take lump sums from your pension pot, in cash, and spend/invest it in whatever you want. No doubt this will see an increase in sales of Jaguars, Mercedes and exotic holidays, however one would expect that most people who have saved shrewdly all of the lives are unlikely to go too far off the rails. A particular attraction of the new reforms is that they present an opportunity for many pension holders to dip their toes into the property market and become buy-to-let landlords.

For those wealthy enough to muster-up a big enough deposit or buy outright, this is a very popular way to generate an income and potentially make significant capital gains in the longer term as house prices continue to steadily rise in the local area. Newly-flush pension savers might well jump at the chance to join the buy-to-let bandwagon, given that interest rates remain stubbornly low and stocks/shares can traditionally be quite volatile (notwithstanding the FTSE 100 recently hitting a record high)

Despite numerous schemes to help first time buyers onto the property ladder, numbers have not raised appreciably, yet at the same time, prices at the bottom end of the property spectrum are bubbling upwards. This means that the lower end of the property market is being dominated by buy-to-let investors, and as the wave of pension money washes into it, we can expect prices to rise further and first time buyers to continue to be thwarted. In this scenario, the only thing that will keep prices from increasing is if UK House Builders can dramatically increase the supply of new housing stock to balance demand. Given the volumes they would have to build per annum, this is highly unlikely.

Of course there is also the small matter of the forthcoming General Election to be settled, which I would expect will hold back any dramatic influx of pension money into the property market for several months at least. However, depending on the Election result, it is likely to be full steam ahead.

As with everything, there are naturally going to be pitfalls with accessing funds in this way. First and not least the large tax bill you could face for withdrawing all or large proportions of your pension pot which can easily propel you into the 40-45% tax brackets.  Seeking sound independent financial advice before committing is absolutely imperative.

No doubt you will find that all sorts of players in the property industry will be our in their droves eager to get their hands on your money, and as such would-be landlords will need to take great care to whom they engage with. Purchasing a buy-to-let property can be daunting and it's a decision with long term consequences. Apart from your own home, it is likely to your largest financial commitment. If you are considering investing in buy-to-let please give me a call on 07875957955 or pop in and see us at 12 Southgate, Chichester, and we'll be happy to give you balanced and impartial advice, and review the pluses and minuses of different locations, property types, yields etc.