First time buyer pressure as SIPPs will raise property prices

First time buyer pressure as SIPPs will raise property prices

	Published : Thu, 27 Oct 2005 13:05 By : David Simms Print this Story

Change in pension schemes are due to affect first time property buyers conspicuously, the Royal Institute of Chartered Surveyors (RICS) stated yesterday.

Pension system changes expected to be implemented next year will boost property prices up, rendering it even more difficult for first time buyers to make a foray into the property market.

The RICS claimed that as many as about 160,000 additional properties throughout Britain will be sold from April 2006 when SIPPs i.e. Self Invested Personal Pensions will be introduced, to April 2009, as it will permit buyers to invest their private pensions into residential property.

This growth in sales, however, could spell deep trouble for first time buyers as prices of properties will scale high in the regional market along with a rise in sales, making it extremely difficult for new comers to step on to the property ladder.

A spokesman at RICS commented on SIPPS, “Those that can already buy will be encouraged to do so, and the tax breaks will make it extremely attractive to do so. However, it will be much harder for some groups. SIPPs are only really taken up by people who already have cash and assets. People in the middle may well be interested, but they have lesser assets and may not be able to do so.”

He added that while those who were well-off would derive maximum benefit out of SIPPs by investing in property for letting it out, the brunt would finally be borne by the first timers still struggling to own a house.

SIPP being a contract wherein one has the discretion to invest the pension money wherever one likes, will allow SIPPs owners to buy secondary homes in the funds and take a loan of up to half of the fund value. Moreover, all income accrued from this investment will remain tax-free, with property purchases being given tax rebates as well.

Nevertheless, most financial experts and analysts have cautioned investors against hurrying into SIPPs, and watch out for its hefty administrative fees. Also, investors ought to have other avenues to amass their retirement savings instead of depending solely on one asset class.

A statement issued by RICS read, “The idea that an individual should plough all of their existing pension and other savings into residential property is undoubtedly a risky move ... Any person considering investing in a Sipp should critically assess the sales and promotional material they receive, and consult a suitably qualified professional before taking an investment decision.”