Will the over 55’s invest pension cash in the buy-to-let market and cause an increase in house prices?
On April 6th 2015, anyone over 55 can withdraw their pensions savings and spend it how they like. Currently, pensions have to buy into an annuity. However, the government changed the law, and over 55’s can use pension-pot cash to invest in buy-to-let properties, which could push up house prices.
The experts believe that pensioners will want to invest in the UK’s housing market, which in turn could start a property boom. There will be an increase of so-called ‘silver landlords’ as the older population invests their funds into buy-to-let housing.
Who is affected by rises in house prices
What could be worrying about rising house prices is first-time buyers unable to get on the housing ladder. Pensioners buying property could make it even more difficult for them. There will undoubtedly be a buying frenzy when lots of the large pensions are cashed and put directly on the housing market. First-time buyers will have significant competition with cash-rich pensioners buying property. There is not enough housing, so this movement will likely push house prices up further.
Estimates are that there could be approximately 400,00 pensioners cashing in and up to 50,000 thinking of property investment in the buy-to-let market. But there could be a downside to this. Critics say an unpredictable and insecure housing market could be an unsafe option for their income in retirement.
One investment company member has said that new rules that come into play next month “could bankroll an entire age group of people”. The generation of baby boomers in the 1980s and 90 gave the housing market a boost, with property ownership becoming another example of wealth for the rich and old. However, many will get a second chance of buying a property with house prices fuelling the property market, and an entire generation of kids will find it extremely hard to get on the housing ladder.
Should pension pot cash be used to invest in residential property?
However, there is another warning for the pensioners before rushing to invest their funds in residential property. The buy-to-let market in the UK can be unpredictable and could leave some pensioners losing money if they put all their money into the housing market. There is also a tax implication too, which may put some pensioners off. 25% taken from your pension is tax-free, but 75% of the remaining is taxed as income.
Another thought is that pensioners are too old to worry about being landlords and may even sell their property to alleviate this responsibility.
If you are thinking about investing pension pot cash into buy-to-let property, then seek professional advice.