Allowing residential property to be held as part of a self-invested personal pension is unlikely to alter the buy-to-let market, claims Landlord Mortgages.
Lee Grandin, managing director of Landlord mortgages, believes a relatively small proportion of the population will take advantage of the new rules after ‘A’ Day simply because it is too costly.
Legislation that comes into effect after 6 April allows a consumer to use their pension fund to purchase a buy-to-let property with the added advantage of being able to borrow up to an additional 50% from their pension fund to do so.
Landlord Mortgages claims most UK consumers would need a pension fund of at least £80,000, with full additional borrowing of £40,000, in order to have enough money to purchase an average UK buy-to-let property.
Lee Grandin says: “From anecdotal evidence, I don’t think most consumers have that sort of money in their pension pot. Even if they could access this sort of capital, they can only contribute 100% of their salary or £215,000 into their sipp each year. So unless they already have an existing pension fund of sufficient size, they are going to need to save for several years before they can think about investing in property.”
It’s not just consumers looking to buy property specifically for their pension who may have difficulties, existing landlords might face their own problems, Grandin says.
“From the perspective of an existing landlord or even a holiday home owner, sipps are not that exciting. In order to include a property you already own into a sipp, you would have to sell it to the scheme’s trustees and potentially incur a huge capital gains tax bill,” continues Grandin.
He concludes: “Anything that encourages people to save for their retirement should be applauded but I don’t think the new regulations for Sipps will have a revolutionary effect on the residential property market or solve the pensions crisis.”
Andy Bell, managing director of the A J Bell Group, agrees: “We’ve long been of the opinion that the changes will not have much of a dramatic impact on the housing market. The notion that when the new rules come into effect everyone is going to chuck a property into a Sipp and property prices will rise as a result, is definitely not something we agree with.
There has to be a semblance of common sense in dealing with the legislation and realising that although it will affect a few people who can take advantage of the changes, it won’t affect everyone and certainly not to the extent that has been recently discussed.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected].IFAonline
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From 6 April 2019