Index provider MSCI believes that there may be a distinct rise in retail investment into residential property as a result of the pension freedoms, which could prompt the launch of a new wave of investment products that mitigate taxes and costs associated with buy-to-let.
Speaking to FTAdviser, Mark Weedon, the firm’s vice president and head of alternatives, said that following this week’s rule changes there will be a lot more amateur investors that have money to play with compared to previous years.
The pension freedoms mean people aged over 55 are free to withdraw their whole pot and there has been speculation that many will invest in tangible buy-to-let properties. However there have been warnings over tax implications and failling yields, which could undermine returns.
Mr Weedon said he it is “safe to assume” that pensioners will want to invest at least some money in housing, due to the fact that the housing market in the UK has become such a prominent asset class - and that products might spring up to help meet demand in a lower cost, lower risk way.
“I think it’s not surprising if when they get access to the money that they would not normally had, pensioners would consider investing in housing, whether it be buying property for themselves, family members, buy-to-let investment.
“Perhaps we’ll see an increase in the availability of retail products which individuals could invest relatively small amounts of money in, intended to mirror the investment performance of owning a buy-to-let investment.”
There are currently only a handful of options for retail investors seeking to invest in residential property through a fund, including the Hearthstone UK Residential Property Fund which was launched in January 2013 and delivered an 8 per cent return last year.
This week as pension freedoms came into force a Bank of Ireland survey reiterated demand for buy-to-let, as 42 per cent of pensioners stated they are planning to take a lump sum with the intention to buy property.
Property portal Rightmove previously predicted last month that savers are set to cash in their pension pots to raise large deposits for buy-to-let property mortgages.
Mr Weedon pointed out that unlike other investments, both London and UK residential property in the right areas have an almost flawless track record of holding value and rising in value over the long term.
Andrew Montlake, director at mortgage broker Coreco, said that he suspects there will be more than a few people who want to use their new pension freedoms and many will undoubtedly look to bricks and mortar as a way of investing this cash.
“The attraction will be the fact that buyers can obtain an income and hopefully a growth in the asset value, as well as being a tangible asset that investors can actually see. For many people this aspect is important and property is something that they understand and can relate to.”
He said that the current crop of products do offer most borrowers a broad spread of options, and much like their residential counterparts, buy-to-let mortgage rates have never been so low.
“The real question for many lenders is to look at their age limits as some lenders will not provide loan for long enough into retirement for some borrowers. I suspect we may see this start to change, on the buy to let side at least, as lenders react to demand for investment loans for longer.”
ruth.gillbe@ft.com
