March 2014 Budget - A Game Changer for Pensions and Buy To Let?

With George Osbourne's March budget announcement completely revolutionising the pensions system in the biggest shake-up in years, people at retirement age no longer have to place their pension into an annuity. From April 2015, savers will be given total freedom over how they withdraw pension money. This means they will be free to take out a lump sum of cash from their pension pot rather than be limited to a fixed (and often low) income every year. Like I said, revolutionary!

With this new freedom come some exciting new possibilities.

People about to hit retirement age may take advantage of the new rules by cashing out an extra lump of their pension and investing it in bricks and mortar - more specifically buy-to-let property. This generation generally has a bias towards property as an investment because they have experienced for themselves the massive appreciation in property over their lifetime. Buy-to-let has proved a lucrative option for many landlords, even in the recession, and is a much more attractive option than many annuities. Average gross rental yields nationally are 5% (research by Home.co.uk). Up here in West Yorkshire you should be looking higher than this, typically anything from 5% -10%+ The buy-to-let market is experiencing a buoyancy never seen before.

Compare this to yields for an annuity currently at 2.2 - 3.2% and you can see the potential appeal for new retirees putting their money into property instead. It seems unlikely that annuities will become more attractive in the future (with people living longer than they used to, returns will surely continue to remain low as insurance companies expect to pay out more), so our opinion is that from April 2015 we may well see more demand for buy-to-let property from newly retired investors keen to get the returns that property can offer.

So, what are the risks?

Of course, no investment is without some degree of risk and property is no exception. You should always take independent financial advice and we are not advocating you should invest in one asset over another. We're merely informing you of what is appearing on the horizon. Remember property markets do go down as well as up.

My Prediction:

My personal opinion as an agent and buy-to-let property investor is that I wouldn't be surprised if prices of property do steadily rise in the run up to the relaxation of the pension rules and then continue to do so once in force. Anyone buying on the hope of price rises alone is of course a pure speculator, and I would advise strongly against this! However while yields remain strong in West Yorkshire, if you buy firstly and foremost for income, you won't go far wrong, and any house price increases in the future remains a bonus in my opinion.

If you would like any help with investing in property or advice on becoming a landlord, I will gladly answer any questions you may have. Just get in touch and we'll have a coffee in our Outwood office.

Published on 24 April 2014

Source Dominic Woodward

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