No ‘cash pot’ flood expected

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QWhat effect, if any, do you think the latest pension change could have on the property market?

AI assume you’re referring to the fact that since Easter, it has become possible for people to cash in their entire pension pot, to spend it how they will. And certainly, there has been a fair amount of speculation that quite a lot of them may choose to spend it on property.

Of course, there are a number of reasons why property is likely to prove a popular choice for those choosing to take control of their pension pots and invest in something other than an annuity. However, I don’t necessarily think this means that there will be a sudden flood of pensioner-investors into the market, looking for properties to buy and rent out – thereby, for example, making life even more difficult for hard-pressed first time buyers.

Why do I say that? Well, for one thing, financing a property investment is likely to prove difficult for many people over 55, because lenders have been toughening their stance on borrowers who cannot repay their mortgage before retirement. Buying properties with cash is of course an option, but with the average pension pot in the UK apparently standing at just £25,000, this is hardly going to be an option available to very many. Tax liability is a further important consideration. Anyone in the fortunate position of being able to buy an investment property with their pension pot could well find that the projected rental income might push them into a higher tax bracket.

As a result of all this, I personally suspect that any growth in property transactions that can be attributed to this change in pension rules is probably most likely to manifest itself in an increase in the numbers of pensioners choosing to downsize in order to release additional equity to help fund their retirement years – either by selling their existing home to purchase something smaller, or by moving to a cheaper area.

So there we have it. From your question, it’s not clear whether you are a pensioner yourself, or a concerned first-time buyer. But either way, I think that the net effect of these changes on the property market as a whole is likely to be fairly minimal.