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Pension freedom, buy to let and the ethical standpoint – Marketwatch

  • 19/05/2015
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Pension freedom, buy to let and the ethical standpoint – Marketwatch
Some say a ‘wall of cash', as described by Kensington in a talk given to brokers at The Buy To Let Market Forum, is heading towards the buy-to-let market.

A survey of 900 over-40s carried out by the lender revealed 45% of pension savers said they would consider investing in buy to let.

The opportunities provided by this possible of influx of new buy-to-let business also creates an ethical consideration for mortgage advisers.

This week we asked our panel of experts if there was a moral obligation on mortgage advisers. Should they check if a buy-to-let client using pension cash for a deposit has already had pension and investment advice from an IFA to make sure this is the right decision?

Tony Salentino, director of Complete FS, says there is an obligation but there is a definite cut off point to the extent of a buy-to-let broker’s responsibility.

Andrew Turner, chairman of specialist buy-to-let brokerage Commercial Trust, is clear on his stance of the adviser’s obligation given the unregulated nature of the buy-to-let market.

Terry McCutcheon, group chief executive of Finance Planning Group, explains the importance of having a relationship with a wealth manager when dealing with pension clients looking to invest in property.

Tony Salentino is director of Complete FS

Tony SalentinoYes, a mortgage adviser should check but it is not his or her responsibility to police what advice a client has had before being contacted to arrange a mortgage.

The decision to take advantage of the relaxation in the rules governing pensions and the ability since April to extract a lump sum is an individual choice. People should have a clear understanding of the ramifications before they see a mortgage broker.

Unless the mortgage broker is regulated to offer pension advice he or she must not be drawn into that kind of conversation. The job is simply to get the best buy-to-let deal they can. They should certainly ask whether their client has taken the right advice about the use of their pension proceeds but it should not be a barrier.

It is not mandatory for a client to have seen an IFA or other qualified adviser before seeking out mortgage advice for a buy-to-let purchase. There is an unhealthy assumption that the public are somehow not bright enough to do their own research and must have asked an expert. Personal responsibility for an investment decision needs to be better highlighted, but the more advice sought or research undertaken can only lead to better outcomes.

Andrew Turner is chairman of specialist buy-to-let brokerage Commercial Trust

Andrew TurnerThe short answer is yes. There is absolutely a moral obligation for a buy-to-let mortgage adviser to recommend that any client who is putting some or all of their pension fund towards a deposit for a rental property receives the appropriate pension and investment advice from an IFA or similarly qualified individual or firm.

The vast majority of buy-to-let products are not currently regulated by the FCA. Buy-to-let investors are considered to be making a commercial decision and are deemed to have a greater understanding of the implications and potential risks of property investment.

Of course ‘bricks and mortar’ has a reputation for being a solid investment option particularly in the current economic climate of modest returns from other channels. The new pension freedoms are expected to drive a number of retirees to the buy-to-let sector for this very reason. As a broker, we welcome the opportunity to work with new clients, but this should not come at the cost of an individual’s financial wellbeing.

The risks and returns associated with buy-to-let investing may not be appropriate for everyone. This is particularly true in cases where clients may be approaching the investment from what is likely to be a state of inexperience.

No-one should enter buy-to-let investing believing it is an easy option. Experienced landlords work hard to develop their financial strategy to maximise the return on their investment. If an individual does not have the benefit of this experience then it is vital that they have sought guidance from a qualified professional so that they may be sure that buy to let is right for them.

Terry McCutcheon is group chief executive of Finance Planning Group

Terry McCutcheonWhen discussing any form of mortgage or investment the client should always seek professional advice. If the client is considering using some or all of their pension funds as a deposit towards a buy-to-let investment property, the client should most definitely should seek professional advice from someone who is qualified to advise on pensions and investments, not just mortgages.

At Finance Planning, we encourage referrals from mortgage advisers to our wealth management advisers particularly in circumstances like this. It is vital that the client understands the potential risks of using their pension funds to invest in property.

Property, like any investment, may not always prove to be a shrewd investment and the client’s important pension funds could be at risk if we experience another property crash. On the other hand, if the client fully understands the risks with investment properties, the potential rental returns from a buy-to-let property, plus the potential increase in value of the property may be better than more traditional pension investments, such as annuities.

Pension simplification means clients now have the freedom to invest their pension funds where they like without necessarily seeking professional advice about their retirement planning.

If they then chose to invest in buy-to-let property they still ought to have advice around the retirement planning aspect; i.e. will this particular (property) investment produce the required income for their retirement?

This is not an area most mortgage advisers are qualified in and therefore clients should be referred to wealth management advisers. At the bare minimum, mortgage advisers should be recommending this and recording it.


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