New pension freedoms lead to buy-to-let boom

Buy-to-let deals were booming in July thanks to increased demand from people taking advantage of new

Buy-to-let deals were booming in July thanks to increased demand from people taking advantage of new pension freedoms - Credit: PA Wire/PA Images

Buy-to-let activity has surged with the number of deals on the market this month hitting a seven-year high, according to a report.

Data analyst Moneyfacts said there are now more than 1,000 buy-to-let products on the mortgage market for the first time since April 2008, driven by the freedoms given to pensioners earlier this year to fully access their pension pots.

Chancellor George Osborne’s reforms came into effect in April, meaning that pensioners do not have to buy an annuity guaranteeing an income for life to access their pensions.

Moneyfacts finance expert Charlotte Nelson said: “With high rents and poor savings rates, it’s little wonder that the buy-to-let market is booming, with the number of deals hitting the 1,000 mark for the first time in over seven years.

“The boom in deals has undoubtedly been boosted by providers taking advantage of the new demand from thousands of pensioners making the most of the new pension freedoms.”

The data firm added that over the seven-year period the average buy-to-let variable mortgage rates had fallen from 6.66 per cent in April 2008 to 3.60 per cent today.

Ms Nelson said: “Unsurprisingly, the growth in products has been accompanied by falling average rates, which have dropped by around 3.00 per cent over the same period.

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“This can help many borrowers to make easy savings, which means that they can generate even bigger returns on their investment.”

The Chancellor told the House of Commons in June that so far £1 billion had been taken out of pensions pots so far by around 60,000 people.

Ms Nelson added that anyone entering this sector “would be wise to seek the advice of an independent financial adviser to see if buy-to-let really is the best place for their investment”.

The Bank of England said in its twice-a-year Financial Stability Report last month that the UK’s booming buy-to-let housing market could pose a threat to financial stability.

The Bank said: “Looser lending standards in the buy-to-let sector could contribute to general house price increases and a broader increase in household indebtedness.”