Published on : Sat, 01 Oct 2005 15:28GMT
by : David Parker

LONDON - The new self-invested pension plans (SIPPs) which come into existence from April 6,2006 could turn into a major headache for first-time buyers and will push them to the lowest rung of the property ladder, experts have warned.

The scheme will bless the higher-end taxpayers with huge rebates and these taxpayers would rush to the property markets setting off a buy-to-let boom and relegating first-times buyers to non-entities. "Since demand is likely to be focused on buy-to-let properties it will create unfair competition for first-time buyers at the cheapest end of the market," said Lord Oakeshott of Seagrove Bay, a Liberal Democrat treasury spokesman. He said that the provisions of the scheme were unfair to first-time buyers.

For example any pensioner, who invests in a £100,000 property, would be eligible to receive a refund in the region of £51,000. Out of this £23,000 would be refunded personally and the remaining £28,000 would be refunded into the Sipp.

This means that wealthy investors would rush to the markets and first time buyers with limited funds stand little chance of competing with the prices offered by these wealthy pensioners. Paul Bradshaw, of the Abbey Bank asserted that this giveaway was being welcomed among the elite, "It has become the hottest topic of conversation at middleclass dinner parties. We are expecting that almost everybody with a City bonus next year will be pouring £215,000 into a Sipp," he observed.

Currently, the Sipp funds can be used on the commercial property alone, this scenario will completely change from April 6,2006 onwards when residential properties, vintage art or even fine wine can be committed to SIPPs.

This offers an unfair advantage to wealthy pensioners in that it makes buying properties more attractive to them, said Helen Adams, of the first-time buyers' website FirstRungNow, "First-time buyers are already in a position whereby many typical first timer properties have been snapped by amateur landlords, able to unlock equity in their primary residences to invest in money-making buy-to-let properties. The move to make rental and second properties even more financially attractive to those with the wealth to buy them will only make things worse," she commented.