People in the UK who are able to take money out of their pension pots from next month can be confident that if they choose to invest in buy to let they are likely to see strong returns, it is claimed.
Recent research by IPSOS MORI suggests over 15% of the estimated 200,000 expected to cash in their pension will choose an investment in property.
Management and investment company Grant Property Investment, said it has already seen a 28% rise in property sales in the last quarter of 2014 compared to the same quarter the previous year and expects a further rise when the pension changes take effect in April.
For those who do enter the market, there is the potential to enjoy the potentially higher returns than the 3% to 4% pensioners could receive when buying an annuity, the firm believes and points out that investors would also own an asset that can substantially grow in value in the future.
‘As a business, we only source prime traditional Georgian and Victorian properties in areas that have high occupancy and can produce a high rental yield. Consequently, on behalf of individual and institutional investors we are very active in 12 UK cities, including Edinburgh, Stirling, Dundee, Glasgow and Aberdeen,’ said As Peter Grant, chief executive officer of Grant Property.
Grant acknowledges that recent analysis from the Halifax suggests UK house prices are firming, while various experts expect house price growth of 4% in 2015. In addition to this he believes prime property in places such as Edinburgh will continue to offer a solid return, including for those who seek alternative ways to utilise a pension pot.
‘Our own expectation is that the properties in prime city centre locations, outside London, will increase in value by a further 3% to 5% in 2015 and achieve rental yields of 6% to 8%. This is significantly better returns than in London where some view prices as overheated and yields are as low as 2% to 3% in prime areas,’ Grant said.
‘It’s also our experience of the market that high quality traditional residential property consistently outperforms new build developments from a capital growth and yield perspective,’ he added.
The firm recognises that those of pensionable age may be wary of tax implications, investing in a single asset class and variations in future interest rates and therefore it always recommend clients take independent advice before making any decision.
‘As an alternative to an annuity, investing in a prime buy to let property gives you and your offspring an asset and potentially rental income higher than returns from an annuity. Many parents of offspring heading for university may also see the benefit of investing in high quality property that can support their child through education and provide monthly rental if let to fellow students,’ Grant pointed out.
‘We expect the buy to let will remain a standout investment for 2015, especially in hotspots like the university cities of Edinburgh, Glasgow, Nottingham and Bristol. Invest well and today’s retirees and their families will be reaping the rewards for years to come,’ he added.