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Impact of pension reforms on buy-to-let

This article is part of
Guide to Buy-to-let and Pension Freedoms

Our buy-to-let experts gave a mixed response as to whether pension freedoms have already boosted the buy-to-let market.

Bob Young, chief executive at Fleet Mortgages, says as the pension freedoms have only just been introduced it is hard to say what impact they will have on buy-to-let.

He says he suspects for the vast majority of retired people there is no chance of them being able to use their pension pots to invest in the buy-to-let sector.

Depending on which statistics you believe, Mr Young notes the average UK pension pot is deemed to be in the £25,000 to £35,000 range.

Given the house price situation in most of the country and the size of the average pension pot Mr Young says it is simply not feasible for individuals to take out enough money from that pot in order to put a deposit down on a buy-to-let property.

He says it is likely that potential candidates will need far more than the 25 per cent that can be taken out tax-free, which means an increased tax bill.

Mr Young says: “Advisers need to be very careful about advising the newly-retired to use small pension pots – after all, this is money that is supposed to last them their entire retirement regardless of the income they may be able to generate.

“I suspect that only those with at least six-figure pension pots are going to be able to use them to invest in property and I am also sceptical about the inclination of many retirees to do this.

“There will be a small number who want to become new ‘silver landlords’ but I anticipate that most of those opting for this will have large pots and probably already be invested in property.”

In practice, if a significant number of individuals took the opportunity presented by the pension reforms to release funds for the purpose of investing in buy-to-let, Tony Müdd, divisional director tax and consultancy at St James’s Place, says this would have the effect of increasing demand on suitable properties and, as a result, push up prices.

So far, Mr Müdd says SJP has not seen a significant increase in buy-to-let property values, or at least no increases that could necessarily be put down to the pension reforms.

That being said, he says the pension reforms have been with us for just a few months at the time this guide was produced and it is far too early to either see any impact or draw any conclusions.

But Dominic Field, chief executive of Temple Field Property, says pension reform has and will continue to stimulate the demand for buy-to-let investment by offering pensioners an alternative to traditional rigid pension provision.

He says: “Part of a pension pot invested into buy-to-let can offer exposure to an investment with income and capital upside and the ability to pass on a property to relatives, who may struggle to get on the housing ladder.”