Cash For Pensions

Pension proposals may see another big investment into the UK’s property market.

Well I never expected that! In a move announced in the budget the Government plan to remove the requirement for people with defined contribution pensions to invest their money into an annuity.

The plans will allow people reaching retirement age to take their 25% tax free cash amount but also take the remaining 75% of their pension as cash too (although this part will be taxed at clients income tax rates).

And so there you have it, as of April next year ‘the pensioner’ can now be trusted to do what they wish with their pension money. Maybe you will invest your pension fund in property, a new car, a holiday to Vegas or even an annuity. What will you do with yours?

Shall I invest my pension in property?

Yes, please…..Well, what did you expect? Of course a mortgage blog is going to inform you of the benefits of investing in property. Actually we do think that investing your pension cash into property is a damn fine idea. Let’s break it down, Let us say that you use your pension cash to put down a 40% deposit across a Buy to let valued at £200,000. We have used an example property in Bristol renting at £900pm. The interest only payments on the 60% mortgage are £350pm which leaves £550pm gross income (before taxes and letting agent fees) which is a surplus income of £6,600pa.  Add to that the potential capital growth of property and investing in property seems a sound option providing income and asset growth.

I am a pensioner, am I too old to get a mortgage?

If your plan is to invest in property on a buy to let basis then the loan will not be regulated by the FCA and therefore will not be subject to the same rules and regulations as a main residence mortgage would be. As a result there are less constraints on age limits and we are able to secure finance for clients who are in their 60’s, 70’s, 80’s and more!

In our opinion…

We do feel that being given the option to do as you wish with your pension funds at retirement is a good thing. Sure, there are some voices of concern who are worried that people may blow the cash and find themselves without a suitable income in old age to maintain their lifestyle. We feel that if a client has the financial awareness to put in place a pension and keep up payments to it then it is unlikely they will not have the financial awareness to ensure their money is used wisely.

As well as funding your own property from your pension we also expect many clients to use the cash to help children onto the property ladder by way of a gifted deposit. In summary the changes will be welcomed by Fox Davidson and we fully expect the proposed changes to inject more money into the housing market in 2015.