Buy-To-Let Surge Driven By Pension Freedoms

8 September 2015

There has been a reported rise in buy-to-let products in this month’s market activity, with a recorded 1,000 buy-to-let products on the mortgage market for the first time since April 2008, as related by MSN financial news. This report was recorded by data analyst firm Moneyfacts, stating that this month’s activity was at a seven-year high.

The cause of this surge? Apparently, it’s due to the freedoms given to pensioners earlier this year, enabling them to fully access their money in pension pots. The Chancellor George Osborn had set out reforms that came into effect in April of this year, meaning pensioners do not have to buy an annuity guaranteeing an income for life to access their pensions. The data analyst firm also reported that over the seven year period the average buy-to-let variable mortgage rates had fallen from 6.66% in April to 3.60% today.

Charlotte Nelson, the finance expert at Moneyfacts, stated: ”Unsurprisingly, the growth in products has been accompanied by falling average rates, which have dropped by around 3.00% over the same period. This can help many borrowers to make easy savings, which means that can generate even bigger returns on their investment.” This seems to sound very appealing to pensioners who are able to access their funds more easily now. The Chancellor had noted that in June, so far £1 billion had been taken out of pension pots so far by around 60,000 people. However, Ms Nelson warns that people who want to go into but-to-let sector ”would be wise to seek the advice of an independent financial adviser to see if buy-to-let really is the best place for their investment.”

So what does that mean for the financial and housing markets? Well, The Bank of England has released its bi-annual Financial Stability report last month, and it states that the UK’s booming buy-to-let housing market could pose a threat to financial stability. This rise in the market could spell trouble for financial markets as a whole. The Bank also said: ”Looser lending standards in the buy-to-let sector could contribute to general house price increases and a broader increase in household indebtedness.” Here, there is a sense that these less stringent restrictions given to pensioners could bring about a knock-on effect on general house prices in the UK, making them higher than they already are.

This begs the question on whether the Chancellor should have given freedom for pensioners to access their pensions early. It’s given them the power to go into the buy-to-let market , but at what cost? Only time will tell whether this reform was a good idea for the housing market or not.