Buy to Let and Pensions
Fund managers may be running scared about the changes to pensions which will allow people to take cash out of their pension to put it into “buy to let”, says David Lawrenson of property consultancy LettingFocus.com.
Buy to Let and Pensions
Many personal finance experts have observed that the recent pension changes could result in quite a lot of pension money being withdrawn and ending up being used to buy property to let – so called “buy to let pensions”.
Even the usually slow-to-react mortgage providers seem to be slowly waking up to the potential of this. Some of the smarter lenders (the usual suspects, actually) have already extended the age at which a borrower can take out or hold a mortgage.
And why should people not choose to cash in some of their pension? When one looks at the poor performance of many pension funds, you can see why people might want to seize back control for themselves – and invest in something else.
But this has got the pension funds industry and the fund management folks in quite a tizzy. They have seen the risk that lots of their policyholders disappear over the horizon to “buy to let land”, taking lots of potential annual pension management income and fees with them – oh dear.
So cue much lobbying of government from the pensions industry – and they have tried valiantly to get the plans watered down, thus far with little success.
The other approach they are using is to keep trying to tell folks how much better off they are investing in an annuity than they would be investing in the private rented sector – and if they can use some statistics to justify their arguments, then so much the better.
Indeed, I see Hargreaves Lansdown have produced some stats and charts to show just this. Their research is quoted widely in the weekend press and in my Saturday Daily Telegraph under the heading, “Spend your pension on property, get a big tax bill”.
Traditional Pensions v Buy to Let
The trouble with their arguments – and with most financial statistics you read about, in fact – is that the conclusions they draw depend on a number of assumptions, made at the outset.
In the case of this particular piece, Hargreaves Lansdown chose to omit to consider the fact that with an investment in property, you could take out a mortgage – and the interest payments on this, the mortgage set up fees and most other running costs can all be deducted from the rental income – hugely boosting your returns.
And smart landlords will know all about how they can at some stage move into the property and use principal private residence and Letting Relief exemptions too, to minimise capital gains tax when they come to sell. (Many personal finance commentators have railed against this, but even if the government changes I don’t think the tax treatment will).
Of course, you cannot get these tax breaks if you leave the cash in an annuity. Indeed, quite the opposite happens – you get taxed on the annuity income.
And try asking your friendly bank or building society for a mortgage loan based on an annuity income and see how far you get.
Now I’m not saying every punter, at age 65, should cash in some of their pension and use the money for a deposit for a buy to let property, financed 75% with a buy to let mortgage.
Whether that is a good option or not will depend on each person’s attitude to risk, their view on property as a good investment and whether they can be bothered to make an effort to become a good landlord. To do it right, I suggest they get the best advice they can on how to do it right. We suggest they buy our own book, see links below, which is the UK’s highest selling property title, (but we fear many newbies will be seduced by the many charlatans in the “property advice” firmament instead!)
Pension Funds and Build to Let
The funny corollary (and irony) of this is that many pensions funds (though not HL, at least not yet) are themselves looking seriously at or are already making active investments in big scale “build to let” – large developments exclusively for private rent.
We have said before (see my other blogs) that we think many of these will turn out to be poor investments – too much of the wrong, boring stock aimed at a soon-to-disappear demographic.
But it makes you think! The pensions funds may on one hand decry the private rented sector for their annuitants, whilst on the other hand, they are investing in it themselves!
Services to Businesses and the Public Sector
We advise a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors and insurers.
We help them develop and improve their services and products for private landlords.
David Lawrenson, founder of LettingFocus also writes for property portals, speaks at property events and is regularly quoted by the media.
Services for Private Landlords
We help landlords and property investors by showing them how to make money in the private rented sector using ways which are fair to tenants and which involve minimal risk.
HOME PAGE OF THIS BLOG: Blog
THE HOME PAGE OF THE MAIN SITE: http://www.LettingFocus.com
For general information on our CONSULTING SERVICES and also to find a small sample of links to where our comments have been featured in the National Press: Consultancy and Seminars
For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS: Property Advice
CLIENT TESTIMONIALS – from both organisations and private landlords: Testimonials
BUY “SUCCESSFUL PROPERTY LETTING”
Our book is the highest selling personal finance and property book in the UK. Click here to Find Out More and Buy it.
If you are from an organisation and would like to bulk buy, please ask us for special rates.
TO JOIN OUR FREE NEWSLETTER Mailing which goes to over 3,500 people (as at Jan 2013) just send an email to [email protected]
We do not send spam or sell our mailing list to advertisers, though we occasionally mail landlords about good products from third parties. Please put us on your “white list” to ensure you receive our emails.
OFFERS ON PRODUCTS FOR LANDLORDS and TO ADVERTISE YOUR PRODUCTS to LANDLORDS: Landlords Resources
PERUSE LAST TEN BLOGS BY GETTING THE RSS FEED: Click Here
NEXT SEMINAR EVENTS FOR LANDLORDS: Landlord and Property Letting Seminar
Copyright of Blog: David Lawrenson 2014. Please link to us here or quote us. We actively pursue copyright infringements. The blog is updated roughly once a week.
TWITTER PAGE My thoughts on property, personal finance, plus a lot of other random things: Twitter
LINK TO THIS BLOG OR TO OUR WEBSITE