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Pension freedom could release buy to let boom

7 January 2015

Flexible access to pension cash from April may spark another buy to let boom, according to new research.

More than a third of pension savers are ready to switch their cash from investments to buy to let property, says a study by a buy to let expert.

From April, retirement savers over 55 years old can draw their cash when they wish and spend the money how they like under new pension freedom rules introduced by Chancellor George Osborne and Pension minister Steve Webb.

Many believe they will generate a better return on investment from property rather than stocks and shares, explained Kate Faulkner, who authored the report.

“Buy-to-let is becoming an attractive option for people, especially while property and rents rise. It can deliver some great returns over 15-20 years,” she said.

“Given the recent pension access announcement, for some it could be good to diversify their investments when approaching retirement, but landlords need to seek expert advice to ensure they understand the returns that property can deliver and the tax implications.”

The report disclosed retirement savers with a pension believed property was a better home for their cash:

• 43% like the idea of a regular rental income
• 22% believe property is a safe place for their money than stock markets
• 17% are confident property prices will outpace other investment values
• 10% want to build a letting portfolio as a legacy for their loved ones

Generally, retirement savers believed buy to let would offer a potential return of between 10% and 14% a year.

Cash in the bank offers less than 3%, while most pension funds target around 5% returns.

“Investing in property can give great returns,” said Faulkner. “However, buy to let comes with risks as well. Landlords have to repair and maintain their properties, pay out for repossessions and cover vacancies out of their own pocket."

“Rental profits are also taxable, and taken together these factors can take a big bite out of any potential yield.”

Under the new pension rules, retirement savers may draw a lump sum from their pension fund.
The first 25% is tax free and the rest has income tax applied.