Published on 14 September 2005 at 03:11 pm
Filed in Property News for Australia » Property Pensions Could Starve Out First Time Buyers
When new self invested personal pension (SIPP) legislation comes into effect in April 2006 and residential, buy to let and foreign properties can all be purchased as investments for the underlying SIPP fund, it is projected that second home ownership in the UK will soar and as a direct result there is deep concern that many first time home buyers will be forced off the housing ladder.
The changes in legislation will allow qualifying investors to purchase properties with full income tax relief on the purchase price meaning that a higher rate tax payer will effectively only use £60,000 of investment for every £100,000 worth of property assets purchased for example. This fact coupled with the recent lowering of charges and easing of fees on SIPPS will make these property pension investment vehicles highly popular retirement planning vehicles for many people and may spark a property buying frenzy.
A representative of the Affordable Rural Housing Commission has expressed her fears that in rural areas where many local people are already struggling to get on the first rung of the ladder, attractive properties will be snapped up by holders of property pensions thus pushing up prices and making the reality of owning a home an unachievable goal for many local buyers.
According to one industry lender, the numbers of Britons owning second homes in the UK will rise to over 400,000 by 2015 with all areas of the country earmarked for a boom in property purchases. On the one hand this projected re-inflation of the property market in the UK is being hailed as a ‘good thing’ because currently house price growth in the UK has slowed, buyer’s interest has waned and the market is fairly flat. On the other hand the obvious issues relating to affordability for first time buyers is something concerning many people and government agencies.
The argument from some camps is that the introduction of the new legislation will simply not lead to a significant demand for housing stock but certain facts emerging from SIPP providers disqualifies this argument and really highlights the potential pending problem that the UK housing market is about to face. For a start, since SIPP providers lowered their fees and charges recently this has led to a significant increase in the number of investors taking out such policies. Following on from this initial rise in investor interest the amount of funds now being invested in SIPPs is significantly increasing as investors work hard to put in as much capital as possible in a bid to increase their purchasing or borrowing power when April 2006 comes around and they can use their fund to buy property. SIPP holders will be able to borrow up to 50% of their fund to buy property, they can even buy their own home as an underlying investment for their retirement, they will enjoy income tax relief as stated, they will further benefit from tax free rental income if they purchase a buy to let investment and if they later sell the property the profits will be capital gains tax free.
Clearly the features and benefits of the new SIPPs are highly attractive and they may well become one of the most popular retirement investment vehicles allowing people to retire rich with a property pension and leading to an easing of the predicted pensions crisis.
But at what cost?
Well, no one knows - so, I guess we shall just have to wait and see whether first time buyers are significantly affected by the changes in legislation or not.
