Savers have shunned buy-to-let despite pension freedoms
09-04-2015
Retirees plan to buy 3m properties, but most of them are downsizing instead of generating rental income
Direct Line Property Club
Buy-to-let activity has been rising - but pensioners have shied away from using their life savings to enter the market Photo: Alamy
By Marion Dakers, Financial Services Editor
Baby-boomers are planning to buy 3m properties during their lifetime, although most are planning to live in the homes rather than splashing out on a property to rent.
A poll by Prudential suggested that the new pension rules, which gave savers more options for their retirement funds, have not spurred a buy-to-let boom.
About 37pc of homeowners aged over 55 said they planned to buy at least one more property, which would represent 3m deals worth £775bn at current market prices.
Just 14pc said their plans were a result of the pension freedoms, and 18pc of prospective buyers said they were mulling anything other than a home to live in, according to the survey of more than 1,000 people.
The most popular reason for planning a purchase was to downsize, with 43pc saying they wanted a smaller home. However, several groups including the investment giant Legal & General have warned that a shortage of suitable retirement housing risks snarling up the property market for others trying to get on the ladder.
The findings came as the Association of British Insurers revealed that Britons withdrew £1.3bn from their pension pots as cash lump sums in the first three months of the new rules, compared to £990m that was invested into annuities, which are no longer the default choice for retirees.
The average annuity purchase price was £55,600, much larger than the average cash withdrawal of about £15,000. Savers are able to withdraw up to 25pc of their pension pot as a tax-free lump sum once they turn 55, although the cash could push them into a higher income tax band.
In July, the Government also said it would slash breaks for mortgage interest payments for buy-to-let landlords, allowing them only to claim relief at the basic rate of income tax, or 20pc. This could make such an investment less lucrative for higher rate earners who still need a mortgage.
Council of Mortgage Lenders data in August showed a rise in overall buy-to-let activity
“There was a lot of speculation that the pension freedoms would spark a rush of over-55s investing in buy-to-let property as a means of generating income in retirement. However, our research suggests that this hasn’t yet been the case, said Stan Russell, senior business development manager at Prudential.
Despite the tax risks, mortgage providers are offering their biggest range of buy-to-let mortgages since 2008 to try and tempt affluent savers into the market.
A survey this week by the insurer Zurich found that just 9pc of prospective pensioners had touched their savings since the reforms came into effect on April 6, easing concerns that many reitrees would blow their money on fast cars.