UK property sales could increase following restructuring of rules governing private pensions

March 31, 2015

The UK will introduce new rules effecting private pensions from 06 April, allowing pensioners greater freedom with regard to their ability to draw down retirement savings. As it currently stands, 25 percent of a pension pot can be withdrawn tax-free when a person retires. This will remain when the new legislation comes into effect, but tax on withdrawing the rest will be cut.

These changes have the potential to increase residential property transactions. However, the increase in sales is more likely to come from pensioners selling larger properties and properties in prime areas in order to buy something smaller and cheaper, according to real estate firm Chestertons.
There are a number of possible reasons why someone would invest in property as opposed to annuity. For example, residential property is looked upon as being less volatile and a relatively safe long term investment when compared with equities. A regular monthly income can also be attained by acquiring a rental property, one can also expect a degree of capital gains over time. Furthermore, a property investment is something that people tend to find less confusing than other investment vehicles.
If estimates with regard to future demand turn out to be accurate, it is likely that there will be almost double the amount of pensioners buying at least one investment property, possibly leading to an increase in buy to let property prices.
However, Head of Research at Chestertons, Nick Barnes believes that the likelihood of pensioners investing in property is fairly low. More stringent rules from lenders could mean that being able to finance an investment may likely be too difficult for many people and while purchasing a property with cash is an option, most pension pots stand at just £25,000, a rather modest amount in terms of a purchase of this kind. Add to that the fact that many people have already withdrawn money from their pensions in order to assist getting children or grandchildren onto the property ladder, a significant rise in pensioners buying property seems less likely.
“The pension changes could trigger a significant increase in residential property transactions but for most households, this is unlikely to involve the acquisition of an investment property,” noted Barnes.

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