SAVERS will pour £8.5 billion into Britain’s housing market from next April, when new rules that allow people to spend their pensions on homes are introduced.

A new study predicted a rush to take advantage of tax breaks which mean that investors could put as little as £120,000 towards a £200,000 house and have the Government pay the rest of the purchase price. The change is aimed at encouraging people to invest in personal pensions.

A further £1.5 billion will flood into overseas properties, particularly in Spain and France, as savers use tax breaks to buy holiday homes, according to the study by Hargreaves Lansdown, one of the UK’s largest independent financial advisers.

Tom McPhail, head of pensions research for Hargreaves Lansdown, said: “It’s the golden combination of property investment and government tax breaks; people want it and they want it now.”

Under rules that come into effect on April 6 next year, investors will be able to buy residential properties using funds in their self-invested personal pension (Sipp). They will be able to put up to £215,000 a year into the Sipp to facilitate the purchases, which will receive tax breaks afforded to other pension savings.

Previously Sipps have been able to purchase only commercial properties and have been used mainly by professionals such as accountants and lawyers, who have used them to buy their firms’ buildings. Hargreaves Lansdown found that 37 per cent of its existing Sipps clients planned to buy a residential property with their pensions. If this percentage is extrapolated from the 140,000 people who own a Sipp, there would be more than 50,000 people willing to take advantage of the new rules.

The average Sipp property purchase is expected to be worth £195,000, which means that savers are likely to spend £10 billion on new properties, £8.5 billion of which would be spent in Britain — equivalent to about 5 per cent of the value of the UK property market.

Almost 80 per cent of investors plan to put a buy-to-let property into their Sipp, according to the survey, while 42 per cent will buy a holiday home, the majority in Spain and France, although Cyprus, the US and Portugal were also popular.

These figures do not include people who have not previously invested in a Sipp but then do so because they are attracted by the new rules, which could push the volume of cash going into the property market even higher.

Mr McPhail said that investors should be wary of a possible collapse in the property market, which could see workers forced to delay retirement because their investment has plunged. “It’s hard enough when it’s your own home, but when your retirement income is affected as well, you’re really in trouble,” he said.

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