MortgagesNov 15 2017

Pension freedoms haven't led to buy-to-let boom

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Pension freedoms haven't led to buy-to-let boom

Pension freedoms have not led to swathes of consumers cashing in their pension to use as a buy-to-let deposit in their later life, according to those operating in the market.

Speaking in London today (15 November), at a Financial Adviser mortgage masterclass on guiding clients through buy-to-let taxation, a panel of specialist lenders and mortgage brokers said there had not been the predicted wall of money coming out of pension pots post April 2015 and into properties.

What has been happening, according to the panel, is that people aged 55 and over are either making cash purchases, or are using their pensions to help their children onto the property ladder. 

Charles McDowell, commercial director of mortgages for Aldermore, said: "We have seen a couple of cases of people using their pension to get into buy-to-let but there is nothing that would indicate any trend."

The point was raised by Wlady Koch of Life Planning Associates, who asked: "Is there any evidence that, with pension freedoms, people are accessing their pots, as some of these pots are very large?

He questioned whether this was becoming a concern, particularly as the result of high transfer values from defined benefit pension schemes.

Louisa Sedgwick, director of sales for mortgages at Vida Homeloans, said: "We have looked at this specifically, as there is a concern that people might be using their pension pots and maybe buy-to-let isn't the right course of action for all consumers. 

I believe regulators are trying to stifle the market and make it difficult for everybody. Jane King

"From what we can see, they are not doing this from a mortgage perspective, however, as they are not using their pension pots as a deposit. We think what some people might be doing is using the pot as a total cash payment.

"Is it the right thing for them? I suppose, like every decision, it comes down to what is right for the client."

Rob Sinclair, chief executive of the Association of Mortgage Intermediaries, said he had also seen a rise in cash-only purchases at the point of pensionhood, rather than a new swathe of first-time landlords.

He explained: "People are beginning to play in this space, and usually this is a cash purchase and [the pensioner] is looking for the income yield off this."

For Mr Sinclair, this is why there is a problem with regulators trying to control the rental market by focusing only on buy-to-let, as regulators generally can't touch this sort of cash-only investment unless it is in a self-invested personal pension.

From a broker perspective, Jane King, mortgage adviser for Ash Ridge Private Finance, told delegates: "I get more enquiries from people wanting to do equity release or helping to help their children onto the property ladder by using some or all of their pension money.

"Buy-to-let as a retirement option does not seem to be a priority for my clients."

A brief poll in the room showed about 15 people - out of more than 60 attendees - declare they had seen more clients asking about using their pension pot to get into buy-to-let.

The lack of new older landlords as a result of pension freedoms could, according to Ms King, be partly down to the fact regulation has made it so difficult for accidental landlords to seriously consider buy-to-let as a retirement proposition. 

Ms King added: "I believe regulators are trying to stifle the market and make it difficult for everybody. Those lenders who can be innovative but offer really competitive products will flourish but my big concern right now is trying to convince my landlord clients that this is [a viable investment] any more.

"They are looking at other things such as Isas and other types of investments." 

Ms Sedgwick agreed: "Buy-to-let will become more of a professional type market, people who do this for a living rather than at the side of their desk."

simoney.kyriakou@ft.com