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Pension freedoms and buying property

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In April 2015 new rules came in to place giving millions of pension savers the choice to remove a lump sum from their pension from the age of 55. There are many reasons why a saver might need to do this; to invest, renovate, take a holiday, buy a car or help a loved one fund their new home. But the biggest question is whether there is going to be a surge of investment in the Buy to Let market.

It’s understandable, as property remains a good investment against low savings rates and unsteady stock markets. The housing shortage has helped to boost the Buy to Let market, along with record low borrowing rates and fees. Landlords take both rental yield (amount of profit after costs) and capital growth (house value) in to consideration when investing. As house prices continue to grow at an average of 8% this year and with a healthy demand, it’s easy to see why this would be tempting.

If you are considering taking a lump sum out of your pension, we would advise that you speak to your IFA or pension provider, who can set out all of the potential gains and risks. This is especially important as the recent summer budget announcement stated that, from April 2017, those earning more than £150,000 will have their tax-free contributions allowance tapered away from its current £40,000 per year to a minimum of £10,000.

There are many ways to invest your money and property is just one of them. We’ve written a number of articles on Buy to Let recently and although potentially lucrative, it’s important to understand that becoming a landlord should not be taken lightly, it holds a position of responsibility and carries risk, just like any investment.

The Office for National Statistics recently reported that 29% of people aged 55-64 were contributing to a pension, with a median worth of £25,000. This pot could be a potential deposit for a Buy to Let mortgage, which could deliver a good rental yield and an increase in property price over time, although success is dependent on several factors. Buy to Let mortgages are principally based on rental yield, with lighter background checks on income. Buy to Let mortgage applications are slightly different to residential mortgages, we’d be happy to discuss the difference with you.

Amongst George Osborne’s recent summer budget announcements, many of which concerned housing, he has made a change to tax which may impact you. Higher rate taxpayers will be unable to offset all of their mortgage interest payments against income tax, which is a blow to say the least. If you are a higher rate tax payer and have, or are considering taking out a Buy to Let mortgage, it would be beneficial to take tax advice to understand the full (net) impact.

It will come as no surprise that the majority of pension wealth is held in areas such as London where property is least affordable. It is however worth considering an investment out of your current area, where local letting agents can look after the property for you for a fee.

 

 

FCA
Springtide Capital Limited is authorised and regulated by the Financial Conduct Authority.

Important Legal Information
There may be a fee for mortgage advice. The precise amount will depend upon your circumstances and loan amount. The FCA does not regulate most buy-to-let, second charge or commercial mortgages. The Financial Ombudsman Service is available at www.financial-ombudsman.org.uk or by contacting them on 0800 023 4 567. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

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