Kevin Paterson, managing director, Park Row Independent Mortgages The UK is the only member of the G7 that does not have some sort of property-based investment trust and it looks like the chancellor has finally woken up to the benefits of this form of investment vehicle. An increasing number of small investors have sought to diversify their portfolios by investing in property, usually in the form of buy-to-let.
Investor diversification has been creeping up on us over the past few years with the continuing bear market meaning many small investors have been getting sick of seeing their pension funds heading south. Alongside this is the chancellor's determination to curb volatility in the UK housing market. The supposed panacea that is long-term fixed rates seems to have lost profile following Professor David Miles' 'state the obvious' report into the subject.
However, one way that market volatility be reduced is by improving the rental stock available to help meet housing demand. Allowing trusts to invest in all forms of property will give smaller investors the opportunity to broaden their portfolios without the risk of having to purchase property themselves. The new funds will allow investors to buy into property using their ISAs, pensions or unit trusts – a format which has traditionally been the bastion of the commercial property fund. The funds are likely to contain a mixture of property types but we may end up following the US example and see the emergence of specialist investment funds in properties such as hospitals, prisons, hotels and so on.
This could help maintain stability in the commercial property and residential rental markets. It would also be a good alternative for amateur landlords in the buy-to-let sector, thus helping to stabilise risk that market in the long-term.