Brokers should brace themselves for a buy-to-let boom following forthcoming pension reforms in April, experts say, but it could ultimately end in a bust.
Chancellor George Osborne is giving the over-55s the freedom to take as much money as they like from their pension pots, rather than directing them into buying an annuity.
Many are expected to take the money and invest in property in a bid to cash in on the success of buy-to-let.
One in three people heading for retirement are considering purchasing a buy-to-let property, according to a recent survey by Platinum Property Partners.
Now a property solicitor has predicted a post-pension reform "feelgood fortnight", as older savers rush to become amateur landlords.
John Nattrass of law firm McHale and Co said property prices, interest rates and new pension drawdown rules all point to significantly increased buy-to-let purchases in the spring.
The improving economy will have an even bigger impact, he said. "Buy-to-let is already growing strongly as economic feelgood starts to ease its way into the regions, but the combination of low interest rates and more freedom in terms of what people can do with their pension pots from April is likely to drive even more deals."
But rising house prices may encourage buyers to move sooner rather than later. "April 6 is Easter Monday, smack in the middle of one of the busiest house-hunting periods of the year, and, for some people, pension freedom could be like a winning lottery ticket."
Nattrass expects the burst of activity to last for a fortnight, because the run-up to the general election will soon put doubts in buyers' minds. "Some people may wonder if there might be factors stacking against them with a new government, such as interest rate changes, or legislation aimed at either pushing or dampening growth."
Solicitor Tim Wixted, managing partner at NeglectAssist, has warned it could all end in tears.
Its research has shown that 80,000 older people will use their new-found freedoms to invest in buy-to-let every year.
But Wixted said pensions reform is a mis-selling disaster in the making. "If the pension reform unleashes this pent-up appetite for being a buy-to-let landlord, we will likely see a boom and ultimately bust.
"With over 80,000 new retirees looking to invest in buy-to-let each year each year, inexperienced landlords will encounter low returns and unexpected problems.
"Many will make losses that they won't be able to recoup, causing long-term damage to their retirement income."
Comments
A lot of people will make the stupid decision to invest their pension in property, thinking the rent will directly translate into their income. Unless they self manage the property, which will make it much harder to find good tenants, they will probably find a third of the income lost in letting agent fees. Then, inevitably, as rates rise there will also be a crash as people withdraw into the kind of safe investments retirees should invest in.
Those affected by the crash, just like the greedy twerps who invested in Equitable Life, will do what baby boomers always do, and demand the government 'puts things right.'