Buy-To-Let Investment Boosts UK Asking Prices

Rightmove’s latest House Price Index has shown that investors purchasing property in the private rented sector has helped keep property prices strong in the UK.

The report – which covers the largest monthly sample of residential property prices – revealed that the average asking price in the UK increased by 1% (£2,740) in March, when compared to February.

Despite the rise, prices increased at a slightly slower rate than the 2.1% rise recorded between January and February. On average, UK asking prices are only £30 lower for new listings than they were at their record high recorded in the summer of 2014.

Rightmove suggests that the uncertainty surrounding the UK’s upcoming general election has caused a temporary slowdown in the real estate market, but added that the pension reform has meant that there are now more buy-to-let landlords looking to purchase property.

“The distraction and uncertainty of an election typically force sellers to price more keenly, though this is often short-lived,” Miles Shipside, Rightmove director and housing market analyst commented.

“Agents report a high level of interest from new landlords, or ‘granlords’, who are typically first time, retirement age, buy-to-let investors. With the highest returns for the lowest investment being at the lower end of the market, the first-time buyer property sector will be the greatest recipient of any increase in demand from investors with substantial pension pots. Unfortunately flats and terraced houses with two bedrooms or fewer are coming to the market in smaller numbers than the middle and upper tier sectors, so are the least prepared for an up-surge in demand,” Shipside added.

Agents have reported a rise in enquiries ahead of new pension rules, which may drive a rise in prices at the lower end of the property market.

When compared to the previous month, Rightmove’s latest home index has shown that there has been a 3.2% rise in the number of newly-listed properties in March. Despite a rise in inventory, properties geared towards first-time buyers or buy-to-let investors have seen the lowest increase in supply.

Pension reform boosts property market

The House Price Index suggests that changes to pensions will create a new wave of investment from buy-to-let landlords.

The new reform allows savers over the age of 55 to take out a number of cash lump sums from their pension savings (25% will be tax free). According to the Guardian, savers with a larger pension pot saved up will be the biggest winners of the reform and on average will be able to avoid paying higher rates of tax.

Many savers have moved their money – or are planning to move their money – into property which has helped boost property prices in the UK.

“The lower-end properties favoured by first-time buyers and investors are in short supply in many locations due to increased competition among mortgage lenders, who are also chasing landlords with offers of low rates for lower risk. Some cash-rich pension pot buy-to-let investors will also be tempted by those tax-deductible mortgage rates, creating further upwards price pressure in a market sector that is already outstripping the higher-priced ones. While many pension pots may not fund a sufficiently large tax-free lump sum to facilitate a property purchase, for some it will provide enough for a mortgage deposit and others may feel it worth paying some income tax now to release more money. For example, someone aged over 55 with £120,000 in their pension pot and £10,000 in an ISA can raise up to £40,000 tax free for a buy-to-let mortgage deposit, which can be topped up further if required by paying their marginal rate of tax on a larger withdrawal from their pension. When the realities of the possible tax penalties on larger withdrawals are better understood by aspiring new landlords, their appetite for buy-to-let may diminish and anticipated demand may be less than speculated. It’s a hard one to call,” Shipside added.

Despite this flurry of interest from landlords aged over 55, investors should be reminded that purchasing a property is a long-term financial commitment. While savers do not strictly need to be retired to access their pension pot, steps should be taken to ensure that any new property investment is manageable.

Jerald Solis, business development manager from Experience Invest commented: “The UK’s buy-to-let market has historically been a popular choice for investors looking to generate an income. Rightmove’s latest index helps to illustrate that even at a time when there is political uncertainty in the run-up to a general election; the UK real estate is still a strong choice for those looking to invest their hard earned money for better returns.”

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