Advisers and estate agents have acknowledged there could be a rush to buy-to-let property investment once the new pension freedoms are implemented, however many claim the scale of the likely investment is being overblown as not many people have a large enough pension pot.
There have been suggestions across the consumer press that the new pension freedoms to come in from April will spark a buy-to-let boom. Commercial buy-to-let investments are also exempt from the affordability criteria that some claim are preventing residential borrowers from extending mortgages into retirement.
Last week the Council of Mortgage Lenders pointed out that the potential trend of buy-to-let landords is likely to be overstated, as the majority of pension pots are likely to be too small to make significant property investment, while many may be put off by the risks involved.
Speaking to FTAdviser, Peter Rollings, managing director of estate agent Marsh and Parsons, said that he would be surprised if there was not an initial rush to property investment once over 55s were in possession of their pension lump sums.
“People will want to pull money out of their pensions and put it somewhere with a three, four, five per cent return, the potential for capital growth and control over their own destiny; rather than entrusting it to a pension adviser.”
He pointed out that buy-to-let rates are at historic lows at the moment, but also noted that many will underestimate the hassles of renting and managing a property.
“It’s not all plain sailing, but it’s still a feeling of empowerment. London will be the core of this trend and yes, it will take a few hundred thousand to do properly, so that probably puts it outside the reach of many turning 55 in April,” Mr Rollings added.
Retirement adviser Portal Financial’s managing director Jamie Smith-Thompson admitted to FTAdviser that some of his clients have considered withdrawing their pension to invest in buy-to-let.
“It’s certainly true that this market can be rewarding for some, but there are many costs and risks to consider.
“If someone has a large enough pension fund to purchase a house, they are likely to face a large tax bill for removing it all. Income tax is also applied to rental income, whereas pensions benefit from tax relief on contributions.”
He added that would-be landlords must consider the costs of maintenance and how they would cope with void periods where the property sits unoccupied between tenancies.
“In 2008 we witnessed tumbling house prices, so it’s definitely a gamble putting your whole retirement income into a single property, especially as the money is illiquid so cannot be removed when it is needed.”
Simon Goldthorpe, executive chairman at advisory firm Beaufort Asset Management, agreed that as people make the leap from tied-up pension pots to actual, accessible money, buy-to-let will be a very easy sell, given potential rates of return and what is effectively gearing via mortgage deals.
“If we were to use similar gearing on any other financial product it would be jumped upon by the regulator, but with buy-to-let it seems to be fine, which is potentially rather dangerous,” he added.
Recently published research from Connells Survey and Valuation showed the buy-to-let sector has already surged ahead of other areas of the housing market in January, with a 37 per cent growth in activity since the previous month and the smallest dip on an annual basis; of just 4 per cent.
John Bagshaw, corporate services director at Connells, explained that the buy-to-let sector bounced back after a disappointing performance in December, when it saw one of the biggest monthly falls.
“It now looks to have regained that lost ground as landlords – now spoilt for choice with a record number of mortgage products to choose from – begin to invest more.
“Low mortgage rates have also continued, posing even more attractive deals for potential landlords or those expanding portfolios.”
By contrast, activity for those already on the property ladder has been subdued, with valuations down 23 per cent compared to the first month of last year.
peter.walker@ft.com
