Auction House’s latest blog advises how reforms to pensions should boost auction sales....

We have entered a new, much more flexible pension’s environment thanks to the changes introduced by the coalition government. It means that savers over the age of 55 now have the option of taking some lump sums from their pension pot with a proportion of it being tax free. The pension reforms will be most beneficial to those who have built up a large pension pot and would like to take greater control of that investment; all will benefit with the tax free element being 25% of their pension pot.

Whilst the money released could be used for short-term lifestyle purchases, in many more cases it will be put into other long term investments with property becoming a popular choice.

So what does it mean to the property market and to the auctions sector in particular? Firstly all the evidence points to property being the best long term investment choice and commentators tell us that over the last 20 years it has substantially out stripped those returns delivered from shares, bonds and cash. The combination of capital growth and rental income make it the logical choice for ordinary people in their retirement years.

So how might it work? This new group of buyers will sensibly turn to the buy-to-let sector and could use buy-to-let mortgages as a further lever to increase their purchase pot. This would enable a modest lump sum of £25,000 once extracted from the pension fund to be used to purchase properties of approaching £100,000; and a withdrawn sum of £50,000 could make it possible to purchase at approaching £200,000. After buying, and refurbishing as necessary, the property can be let and managed by an agent or by the new owner. Rental income should more than cover mortgage repayments and over the medium/long term a handsome rise in capital value can be expected.

Auction is becoming the popular route for investors to purchase houses and flats; and regional auction rooms are the ones preferred and better frequented by small local investors, including those buying their first rental property. Many say that it is the ease, speed and certainty of auctions that attract them as well as the chance to pick up a bargain for less than the maximum they had set.

Without doubt the idea will appeal to many in this new group of pension funded buyers. If you are one of them you’ll need to start by consulting your pensions advisor and putting your financial plan together. Then to get comfortable with the auctions process we suggest that you attend a couple of auctions to familiarise yourself with the sale room process. Then decide on the area and type of property that should suit your requirements, speak to auctioneers and estate agents to get their views, and then begin your internet search for the right property. You will also want to take advice from lettings agents and other property professionals to ensure that your sums work and that there will be a continuing demand from tenants. Research and planning is important but the experience can be rewarding and when you are successful the long term result should be extra income and greater financial security in you latter years.