House prices to soar next year with new pension rules
12-31-2014
HOUSE prices are set to soar next year with the introduction of new rules allowing people to invest their pension pots in property.
By Sarah O’Grady
Elderly couple and estate agentGETTY
People are expected to purchase properties that they will rent out to provide an income in old age
Analysts predict home values will rise to almost £190,000 in 2015, adding more than £12,000 to the price of the average home.
Experts claim the rule change could see as much as £5billion injected into the property market by people cashing in their savings.
From April, the legal requirement to buy an annuity with pension savings on retirement will be lifted and many people are expected to instead purchase properties that they will rent out to provide an income in old age.
Stuart Law, of the buy-to-let specialist Assetz, predicts a seven per cent increase in property values across the UK in 2015 on the back of stamp duty cuts and the pension reforms.
He said: “As property investment continues to outperform all other major asset classes we will see a surge in buy-to-let as people look to make the most of the cash in their pension pots.
“If half the estimated 200,000 people looking to cash in a percentage of their pension pots from April 2015 have £50,000 to invest in property that is an astonishing potential £5billion injection.
“Canny investors will be looking to build portfolios in the regions, especially the North, for cheaper prices and higher yields than in the South-east, to boost their income during retirement and generate a decent and growing nest egg to pass to their offspring.”
New analysis by insurer Direct Line For Business found a third of people aged between 45 and 64 with a pension would consider using some or all of their retirement funds to buy property. John Goodall, CEO of peerto-peer mortgage lender Landbay, said.
“The long term impact of annuity reforms will have a profound impact which isn’t yet factored into most models and predictions for house prices.” Headline figures from the Land Registry’s November House Price Index due out today show prices increased 7.1 per cent in the 12 months to November.
The official average value of a home in England and Wales rose to £176,581. Mortgage expert Dominik Lipnicki said: “Without doubt these pension changes will see more people entering the buy-to-let market. The game has changed.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Strong rental yields mean owners can enjoy a healthy income with the added bonus of generous tax breaks, such as the ability to offset mortgage interest, maintenance and management costs against the rent.”
Some of those reaching retirement age may prefer to use their savings to pay down their mortgage. Others may not want the trouble of being a landlord.
But Richard Lambert of the National Landlords Association said the pension changes would make housing “a more financially viable option for providing an income in retirement” and would make homes available for “future generations”.