Property Sipps
Gordon Brown's change of heart on self-invested personal pensions (Sipps) earlier in 2006 came as a shock to many investors who hoped to purchase buy-to-let property or second homes with the promised 40% tax relief. The chancellor's U-turn on Sipps including residential property, as well as other assets, such as wine, vintage cars and works of art, came too late for many who had cashed in assets in preparation for the change in regulation.
The question now is where is all the money going to go now that it isn't allowed to pour into the holiday-home market? It will most likely still be seeking a home in the sector — only less directly, through the use of property-linked investment funds.
Property-linked investment funds
Investors will still be able to play the residential market through property-linked investment funds held within a Sipp. The advantages make it a better option, as diversification is never a bad thing:
- funds can be bought and sold instantaneously
- you only need a fraction of the capital to invest
- no complicated conveyancing or legal issues
- no mortgages to secure
- no property chains to investigate
- instead of just owning one high-risk holiday home, you gain exposure to a range of different properties
Abbey is looking for investors whose dreams of putting their home into their pension funds have been dashed by the Chancellor. The Abbey House Price Plus fund aims to outperform the Halifax House Price Index, after all the charges are taken into account, by investing in property derivatives over a three to five-year term. The minimum investment for the fund is ££3,000 and it qualifies for most Sipps, Isas and Peps. Although performance is not directly linked to the Halifax index and there are no guarantees, Abbey Financial Markets is confident of the fund's appeal given that it means not having to deal with the bugbears of many landlords such as:
- void rental periods
- difficult tenants
- maintenance costs
- time spent managing the property
- the high initial capital outlay and start-up costs
Assetz, the property investment group, has recently launched the UK Residential Property Short Term Capital Growth fund where the annual management fee will be no more than 1%. On the downside, the fund is not authorised by the FSA, which could be a concern to some.
Investing in European property
Outside the UK, ARC has launched its European Property Fund which claims to be the first FSA-authorised fund to include residential property in its investment strategy. You must invest a minimum of £5,000, for which ARC will connect you to the residential property markets of Spain and Germany, as well as the emerging markets of Croatia, Greece and Turkey. Its aim is to deliver a pre-tax investment return of 8% a year over the medium term. But there are some catches: you must pay a 6.5% initial charge and a 2.5% annual management fee. And if the ARC fund managers outperform their annual target of 8%, they receive 20% of everything over that target 8% as a performance fee. So they gain whether you do or not.
For anyone tempted by an overseas property fund you should consider whether European property markets are likely to return much more than those in the UK.
Think carefully before securing other debts against your home.
Your home may be repossessed if you do not keep up repayments on your mortgage.
The overall cost for comparison is 7.1% APR. The actual rate available will depend upon your circumstances. Ask for a personalised illustration. There may be a fee for the mortgage advice. The precise amount will depend on your circumstances, but we estimate it will be 1.5% of the loan amount with a minimum fee of £500 added on to the loan.
Mayfair Consulting Limited is an Appointed Representative of The Mortgage Times Group Limited, 279 Tottenham Court Road, London , W1T 7RJ , which is authorised and regulated by the Financial Services Authority no. 303007.
