Fears run on property could price out first-timers

Baby-boomers are said to be focused on property investment. Picture: Getty

From 6 April, pensions can be withdrawn as lump sums instead of being paid out as regular amounts, offering the potential for a “grey pound” spending spree. Scottish Friendly said this could include making investments in property, pushing up prices and leaving first-time buyers just “one month left to get on the property ladder”.

The savings and Isa firm said there would be a “rush” by the over-65s to buy homes to then put into the rental market, offering a better return than leaving savings in pension funds.

But estate agents said the situation was not so dire and that there was a ceiling to rental prices. There are also still schemes to help first-time buyers that exclude buy-to-let property.

Neil Lovatt, director at Scottish Friendly, said: “The baby-boomer generation has always had an unhealthy obsession with property. This has been manageable, even beneficial to the economy when people slowly climbed the property ladder. But the new pension rules will essentially bankroll a generation, allowing them to buy into an already over-inflated market in the expectation that it will help fund their retirement.

“Estate agents up and down the country are rubbing their hands in gleeful anticipation of what is about to take place. Throughout the 1980s and 1990s the baby-boomer generation fuelled the housing market to such an extent that property ownership is quickly becoming the preserve of the old and the rich. Now they are getting a second bite of the cherry and could well tighten their grip on the property market so much that generations of children to come will find it difficult to buy.”

He added: “Allowing people greater control over their retirement funding should be a positive thing, but not enough is being done to batten down the hatches and protect people from the potential backlashes that these changes could bring.”

The Bank of Ireland recently reported an increased interest in buy-to-let investment in Scotland and suggested 29 per cent of retirees in the UK were planning to use pensions to buy property. But a survey by Saga countered that most would aim for a secure future income instead.

Mark Hordern, chief executive of Glasgow Solicitors Property Centre, said the situation would not be as “cataclysmic” as Scottish Friendly was suggesting, but that some pensioners would opt to use their money as a deposit on a buy-to-let property. He said that could offer a 6 per cent return on the investment compared to 3 per cent with other forms. But first-time buyers also still have access to help-to-buy government schemes so it was not fair to say there was just one month left to buy a home.

Mr Hordern said: “I don’t expect the change in the market to be as dramatic as they suggest. The market is already experiencing a significant level of demand for buy to let, but some pensioners will choose it as an appropriate investment option.

“As interest rates start to rise, other investments will start to look as attractive as buy to let.”

The National Association of Pension Funds cautioned against pensioners acting quickly and rushing into decisions on whether to leave pensions as they are, and if they withdraw an amount, what to use it for.