We get some pretty rubbish press releases in the MoneyWeek office. But today brought one of the most dim-witted any of us have seen for some time. The headline warned that first-time buyers have "only one month left to get on the property ladder."
You will wonder why that is. Perhaps there are some new lending regulations coming in? Perhaps Help to Buy is to be shut down? Or perhaps there's to be an age restriction on home ownership?
Actually it is none of these things. Instead as the press release goes on to explain, "when the new pension rules come into force in April, a surge of pensioners will draw down their funds to invest in the property market. This will drive up house prices and leave many first-time buyers stranded."
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
What's more, first-time buyers won't be able to get mortgages anymore. That's because "mortgage lenders may turn attention away from offering good high loan to value (LTV) mortgages in favour of the less riskier lower LTV mortgages in the buy-to-let market." This is nonsense. Absolutely total nonsense.
There has been much talk about pensioners using their new pension freedoms to withdraw all their money in one huge lump sum, which they will then pour into the only market they really trust the UK property market.
But while there is no doubt that people will be talking about doing this, once they've looked at their tax situation and at the difficulty of getting mortgages in later life (most mortgage lenders insist you are under 75 at the end of a mortgage term), it doesn't seem likely that they will actually do it.
Let's look at the tax situation. Pensions are usually referred to as tax-free savings. And they are on the way in. When you save into a pension, you get to do so without paying any income tax on the money in question first. But pension money stops being tax-free when you withdraw it. Apart from the first 25%, which comes out as a tax-free lump sum (and always has done nothing new here), the rest is taxed as though it were income.
So, imagine that you have a total pension pot worth £200,000. You take 25% tax-free (so, £50,000). You then pay income tax at your marginal rate on the rest.
Let's assume you have an income of £10,000 a year already (state pension, savings, dividends, etc). Your tax bill will be £58,143 (see here for a helpful calculator). However, if instead you had left the money (bar the 25%) in the pension wrapper and taken out £10,000 a year for the next 15 years, you would have paid a total in tax of £28,200.
You just handed over nearly £30,000 to the taxman totally unnecessarily. That's nuts. It's also why 83% of people to whom the tax implications of all this were explained said they would leave their money inside their pensions and take an income as needed rather than take it all out in one go.
First-time buyers, you can relax.
-
Ofgem proposes new energy tariffs with low or no standing changesStanding charges have invited public backlash as households battle high energy bills
-
Google shares bounce on Gemini 2.0 launchGoogle has launched the latest version of its Gemini AI platform, and markets have responded positively. Is it time to buy Google shares?
-
House prices to crash? Your house may still be making you money, but not for much longerOpinion If you’re relying on your property to fund your pension, you may have to think again. But, says Merryn Somerset Webb, if house prices start to fall there may be a silver lining.
-
Prepare your portfolio for recessionOpinion A recession is looking increasingly likely. Add in a bear market and soaring inflation, and things are going to get very complicated for investors, says Merryn Somerset Webb.
-
Investing for income? Here are six investment trusts to buy nowOpinion For many savers and investors, income is getting hard to find. But it's not impossible to find, says Merryn Somerset Webb. Here, she picks six investment trusts that are currently yielding more than 4%.
-
Stories are great – but investors should stick to realityOpinion Everybody loves a story – and investors are no exception. But it’s easy to get carried away, says Merryn Somerset Webb, and forget the underlying truth of the market.
-
Everything is collapsing at once – here’s what to do about itOpinion Equity and bond markets are crashing, while inflation destroys the value of cash. Merryn Somerset Webb looks at where investors can turn to protect their wealth.
-
Value is starting to emerge in the marketsOpinion If you are looking for long-term value in the markets, some is beginning to emerge, says Merryn Somerset Webb. Indeed, you may soon be able to buy traditionally expensive growth stocks on the cheap, too.
-
ESG investing could end up being a classic mistakeOpinion ESG investing has been embraced with enormous speed and zeal. But think long and hard before buying in, says Merryn Somerset Webb.
-
UK house prices will fall – but not for a few yearsOpinion UK house prices look out of reach for many. But the truth is that British property is surprisingly affordable, says Merryn Somerset Webb. Prices will fall at some point – but not yet.
