Effect of Pension Release on the BTL Market

Hi Richard

I agree with much of what you have said.

OPPORTUNITYISNOWHERE

There are two ways to read the above

Opportunity is nowhere

OR

Opportunity is now here

I agree that there will be many who will be scammed but I don't think you have to be a scammer to benefit from this change.

See >>> http://www.property118.com/buying-selling-tenanted-property/
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If 10% of the landlord that at present has more than 2 properties and is over 55, decide that they now have the option of buying at action due to being able to access funds from their pension, starts visiting auction before deciding what to do….

Becoming a cash buyer for the first time in their life’s opens up so many possibilities…

(We don’t need people that are not already landlords to change what they do, the market can be transformed just by current landlords releasing pension money.)

Reply to the comment left by "Ian Ringrose" at "18/03/2015 - 09:51":

Just suppose you are aged 55 and have a £200k pension pot.

Choice one is to take £50,000 (25% of the fund tax free) and then purchase an annuity with the remaining £150,000. The annuity will return around £1,500 a year which is taxable.

Choice two is to take the £50,000 tax free and then to draw the remaining £150,000 and pay tax on it. Absolute worst case scenario (highly unlikely) is 50% tax. Even this would leave you with £125,000 cash. This could fund decent deposits a few average BTL properties and leave money to spare. Even on a 10 year fixed rate it would not be unreasonable for such properties to produce lets say £125 pcm of net cashflow, i.e. £3,000 per annum, plus of course the properties are likely to increase in value over the long term.

Choice number two is a no-brainer, which is why so many people will be looking at this option.

Yes there will be scam artists with their glossy offerings and some people will be ripped off. Sadly, that's just life, buyer beware. However, there will also be people who are looking for properties they understand in areas close to where they live. Gross yields might only be 4 or 5% but the numbers could still stack up better for them than annuities. With the magnificent 7 facilities available via Property118 it is these people that we can help, e.g.

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Without gearing on properties, I can make nearly the same "spendable" income just by choosing a selection of investment trusts, these investment trusts can be in a SIPP with income drawdown.

4% is not unreasonable to expect as income from a good spread of share investments.

So a lot will depend on access to BTL mortgages, but being willing to take some risks has a lot more effect on the returns, then deciding to invest in property.

(What the reforms have done is make it possible to recommend pension savings to most people without having to predict what their life will be like in 20 years time.)

We are still left with the problem that capital is of no use when we die, but we can’t spend it, as we need the income as we don’t know how long we will live. If only “with profit” annuities worked better….

I do not want to be responsible for managing properties when I am 90, using an agent does not remove the responsibility, it just removes the day to day easy tasks.

Reply to the comment left by "Ian Ringrose" at "18/03/2015 - 10:42":

Hi Ian

Yes of course property is not the only choice in terms of where to invest liberated pension funds. However, I do think it will be a popular choice because the kinisthetic aspects of owning property. The alternative you have suggested is, to a lot of people, a piece of paper identifying the value of units in a fund managed by a geeky investment analyst, who an investor is never likely to know the name of never mind meet, speculating with other peoples money from some ivory tower.
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Reply to the comment left by "Ian Ringrose" at "18/03/2015 - 10:46":

Hi Ian

Annuities are what they are, and that is why people are turning against therm.

Not only are the returns appealing but the capital value of the money invested into an annuity generally dies when you do. There are options to purchase pension annuities that pay out a reduced amount to a spouse but the returns on these are even worse!

The Pharaoh's have proven that non of us can take our material wealth with us but more recent history has proven that property provides a far more efficient legacy than annuities.
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I’m no expert and I don’t have a crystal ball but I do rely on my intuition and this tells me that maybe 15% - 20% of those with a sufficiently large pension pot will look to invest in a BTL and maybe build small portfolios of 1-2 entry level properties in the wake of the pension reforms. These investors, as pensioners, will likely have enough time on their hands to do the right thing as Landlords, and having invested a large chunk of their life savings in property will look to do things properly and make things work. Naturally, as newbies they will make mistakes early on, and my intuition also tells me that they will learn that the 1 or 2 properties they own on a 70-75% BTL is unlikely to give up ‘easy money and a Champagne lifestyle’. After the ego rush of being a landlord wears off they will realise that being a landlord is a professional responsibility, not highly rewarding unless you have sufficient volume, and with a small portfolio, one bad experience can be both financially and emotionally costly. Add in that in 5 years time interest rates are likely to be higher, statutory and local regulations governing rental properties are likely to be more restrictive, and the liberal media is likely to portray landlords as a new pariah ( I read The Guardian and it’s already happening),I suspect that around half of the new ‘grey wave’ will decide it’s just not worth the return on the investment or the hassle involved in doing things the right way and decide and they’d much rather have their cash in an ISA or under the bed. They will sell up, pay their CGT be a little wiser and by and large not be that much better or worse off than if they’d left their pension invested and taken a draw down for example.
What does this mean for property 118 readers? My Intuition tells me that we’ll get a small blip in BTL suitable property prices over the next year or two with a flattening or small correction on prices in this segment in 4-5 years time.
One strategy/opportunity could be to take advantage of the blip if it becomes a sellers market, sell off your entry level stock and unencumber your best properties, wait for the correction, refinance and start all over again when it becomes a buyers market.
I have a pension pot and a small portfolio of BTL. I plan to keep both for the mid to long term
I agree with Mark, usually if you see a bunker it means the Green is nearby…

Reply to the comment left by "Ian Ringrose" at "18/03/2015 - 09:51":

Not wanting new landlords to come into the market is rather selfish mean and unfair. Why shouldn`t they be given every opportunity to invest their own hard earned money in property if they so wish. Its a free country.

Reply to the comment left by "Ian Ringrose" at "18/03/2015 - 10:42":

Gearing though is a fundamental tool used by successful property investors. It enables money held in property as an asset class to far far exceed the returns you can make in shares.