Property expert Simon Morris has recently released a guide which explains the pros and cons of taking advantage of pension reforms to invest savings into the UK’s buy-to-let property market.
The government introduced reforms on 6th April 2015 which mean that people no longer have to buy an annuity for their pension. If a person is aged 55 or older and they have a defined contribution pension, they can remove their savings as lump sum instead; a quarter of the withdrawal is tax free, whilst the rest will be taxed at a comparable rate to income.
Research cited by Select Property found that a third of people between the ages of 45 and 64 are thinking of capitalising on pension reforms to invest money into buy-to-let properties. This may be because analysis conducted by lender Paragon shows that every £1,000 invested in buy-to-let in 1996, the first year investors could access specialist buy-to-let mortgages, became worth £13,048 by 2014. This, along with attractive interest rates, makes buy-to-let seem like a lucrative venture.
Simon Morris released ‘The Advantages and Pitfalls of Investing Your Pension in Property,’ to explain the risks and rewards of this strategy. The guide also details alternative property investment options including property investment funds, property investment bonds, property investment trusts and real estate investment trusts.
Risks of buy-to-let
Commenting on the guide, Morris was quoted by Building Construction Design saying: “Investing a lump sum pension in lucrative areas of the property market such as buy-to-let may seem like a good idea, but there are elements of risks and time-delays attached. A range of issues including vacant tenancies, unreliable tenants, plummeting property prices and rising interest rates can cut into buy-to-let returns. If investors are looking for monthly return to help with their monthly living costs, this could take time if the wrong property choices are made.”
“In the guide I explain that potential investors need to take a range of measures before they commit to releasing equity from their pension to invest in property. Most importantly, they should consult with an experienced Independent Financial Advisor (IFA). They will consider an investor’s appetite for risk against expectations concerning yield to point them in the direction of the best financial product for their circumstances.”
Investors should make informed decisions
The property expert continued: “However Buy-to-let isn’t the right choice for every investor. This guide outlines alternative options within property investment. For example, property bonds, investment funds, and products that can invested within an ISA wrapper. These investment vehicles can provide tax advantages and some products even guarantee initial investment.”
“Whichever route they choose, it’s key that investors opt for UK regulated investment products and seek as much independent advice as they can before they invest. This will allow them to make an informed decision and ensure they give themselves the best chance of securing strong returns.”