The property U-turn on self invested personal pensions is a classic case of bad timing, says specialist lender UCB Home Loans.
It follows yesterday’s reversal to place investors buy-to-let properties into a SIPP.
Keith Astill, managing director at UCB Home Loans, says the decision was a last-minute u-turn on an issue that was scheduled to come into force on April 6 next year.
Astill says: If it was regarded as a bad idea, it should never have been proposed in the first place. Im a little perplexed about why we have had almost two years of announcements regarding the rule changes allowing people to put residential property into SIPPs, and then four months before it comes into force the whole project is shelved.
Astill adds: This will be a financial blow to those people who have either set up a SIPP in readiness, or who have paid deposits on off-plan flats so that they can put the property into their pension in April.
The decision will not have any major effect on the long-term health of the buy-to-let sector, as it affects only a small proportion of the market. However, it will be a disappointment to those who were hoping to include residential property within their SIPPs.
Paragraph 5.63 of the pre-budget report refers to the desire to prevent people from claiming tax relief on holiday homes or second homes for their own personal use, with which I would agree. However, it then goes on to effectively ban all residential property from SIPPs, which is a bit like throwing the baby out with the bathwater.
UCB Home Loans had expected the pensions changes to provide a 15% boost to the buy-to-let sector next year. In its latest report on buy-to-let property and SIPPs, published in July this year, the lender said the pensions changes would have seen between 3bn and 5bn spent on rental property for use within pensions over the next year. The boost to the buy-to-let sector was not expected to have any effect on house prices, as it forms a small portion of the overall housing market.
Around 100,000 Britons currently hold SIPPs. Pensions industry commentators had estimated that between 0.5 and 2.5 million people would take one out by 2010, with the market having reached five to six million people by 2020.
Astill says: Pensions have had a difficult time over the past few years as a result of setbacks in the stock market. The A-day changes allowing tax relief on residential properties in SIPPs would have been a welcome boost to the sector.
Research conducted in October among 1,236 mortgage intermediaries by UCB Home Loans showed over two-thirds of those questioned are considering putting buy-to-let property into a SIPP for themselves next year. The same proportion say that they would be promoting to their clients the ability to put residential property into a SIPP. Most feel that the buy-to-let sector would be boosted by the pension changes, with the majority believing that it would boost sales of buy-to-let property by between 20% and 40% in the first year. However, 98% of intermediaries say that the government had not given people enough information on the advantages and disadvantages of SIPPs.