Posts with tag: pensions

Does property investment offer better returns than pensions?

Published On: June 19, 2017 at 8:48 am

Tags: buy-to-let landlords,investment,landlord,pensions,tax

Despite recent Government tax hikes on buy-to-let landlords, alongside tougher criteria for mortgage lending, a new report has suggested that the correct property investment can provide better returns than a pension.

According to the report from Armistead Property, there are a number of surveys that underline the fact property investment is more profitable.

Portfolio

While pensions were found to beat single-property returns, investors with more sizeable portfolios have the potential to exceed pension money.

Further analysis from AJ shows how much £100,000 would grow in both capital and returns over 10 and 20 years in three scenarios.

Using both historic and housing stats, the forecasts compare investing in a pension with someone purchasing a single buy-to-let property without a mortgage and with someone buying three properties with a total mortgage borrowing of £300,000.

The original £100,000 is split into three, where each third becomes a 25% deposit on a property. Tax features, such as stamp duty, are also factored in with property investments.

The table below reveals the results:

Scenario	Value of Investment Over 10 Years	Annual Income Over Period (Pre-Tax)	Value of Investment Over Another 10 Years
Buy-to-Let (1 x property)	£123,095	£4,188	£156,331
Buy-to-Let (3 x properties)	£171,600	£7,242	£217,932
Pension drawdown after first 10 years	£203,612	0	£174,008

Does property investment offer better returns than pensions?

Risks

Peter Armistead, Director of Armistead Property, noted: ‘The research shows that three buy-to-let properties produce £42,000 more than a pension over the 10 years. However, property investment comes with greater risks such as fluctuating house prices and capital growth; void periods; fluctuating rents, maintenance issues, tenant management issues etc. Property is definitely a long term investment and does have many drawbacks as an asset class which a pension doesn’t, the most notable one being lack of liquidity.’[1]

‘In an ideal world, people should be investing in both a pension and property from as early an age as possible and ideally from your 30’s. It is advisable to spread the risk and have investments for the future in more than one pot,’ he added.[1]

[1] http://www.propertyreporter.co.uk/landlords/can-btl-really-deliver-better-returns-than-a-pension.html

Young prioritising property over pensions

Published On: September 22, 2016 at 9:42 am

Author: Em Morley

Categories: Finance News

Tags: buying a property,pensions,property,retirement

A new study has revealed that more young people feel saving up for a property is more important than a pension.

Research conducted by independent market research firm Consumer Intelligence, discovered that under 35’s are three times as likely to save for a residential property than for retirement.

Priorities

The report was commissioned by Nottingham Building Society and revealed that 24% of under 35’s feel that saving for a property is their priority. This was in comparison to 8% who think of saving for retirement.

For many years, retirement saving has been the main saving and investing priority for the population. However, this latest survey suggests attitudes are changing and getting onto the housing ladder is becoming the main focus for those under 35.

34% of under 35’s are saving for their first home or to move, in comparison to 18% with the population as a whole.

Young prioritising property over pensions

Best choice of investment

Just last month, Andy Haldane, Bank of England’s chief economist, noted that investing in property is a better choice of investment for retirement than paying into a traditional pension.

Ian Gibbons, senior mortgage broking manager at Nottingham Mortgage Services, said: ‘The importance that younger savers place on buying their first home or moving home demonstrates that there is strong demand for help with saving with under 35’s saying owning a home is three times more important than saving for a pension.’[1]

[1] https://www.propertyinvestortoday.co.uk/breaking-news/2016/9/the-young-prioritise-property-over-pensions

BoE’s chief economist says property investment better than pension

Published On: August 31, 2016 at 10:11 am

Author: Em Morley

Categories: Finance News

Tags: buying a property,housing crisis,pensions,property investment

The Bank of England’s chief economist has moved to suggest that investing in property is a better option for retirement than paying into a pension.

Speaking about preparation for retirement in the Sunday Times, Andy Haldane noted that, ‘it ought to be pension but it’s almost certainly property.’[1]

Shortage

Mr Haldane owns two properties but pointed to the fact that there is a severe housing shortage across the country. In turn this is driving up prices and placing upward pressure on properties.

Haldane said, ‘as long as we continue not to build anything like as many houses in this country as we need to…we will see what we’ve had for the better part of a generation, which is house prices relentlessly heading north.’[1]

Residential property investment returns-rental income and capital growth-are continually outperforming other mainstream investment types. These include commercial property, UK Government bonds and a more secure alternative to the volatile stock market.

Agreement

A number of property experts have moved to agree with Mr Haldane’s comments, including Graham Davidson, managing director of Sequre Property Investment.

BoE’s chief economist says property investment better than pension

Davidson observed, ‘poor returns, hefty fees and inconsistent annuity rates have caused the number of Britons taking out pensions to fall considerably. As Mr Haldane has pointed out, bricks and mortar continues to out-perform many other more volatile investments, providing stable returns with the added benefit of owning a tangible asset, unlike stocks and shares. This is particularly important for the older generation, many of whom will look to hand down their investment to family members.’[1]

‘Our figures support Mr Haldane’s claim, with 46% of our investors citing investing for their pension pot as their primary motivation for choosing buy-to-let property and 95% of investors purchasing with their pension in mind.’[1]

Opposition

However, not all experts are in agreement. Ros Altmann, former pensions minister, labelled Haldane’s comments as, ‘divorced from reality.’ He also said it was, ‘irresponsible’ to think people should rely on property over pensions.

[1] https://www.propertyinvestortoday.co.uk/breaking-news/2016/8/investing-in-property-is-better-bet-than-a-pension-says-boes-chief-economist

How Will the Interest Rate Cut Affect You?

Published On: August 5, 2016 at 8:42 am

Author: Em Morley

Categories: Finance News

Tags: Bank of England,finance,interest rate cut,interest rates,mortgages,pensions,savings

Yesterday, the Bank of England (BoE) decided to cut interest rates for the first time in over seven years. So how will the interest rate cut affect you?

The Bank’s decision to cut interest rates from 0.5% to 0.25% marks the first interest rate change since 2009 and stems from market uncertainty caused by the EU referendum vote.

But what does the cut mean for the average consumer? A series of experts explain:

Savings

“Today is a bad day to be a saver; savings rates have already plummeted to record lows, so a cut to interest rates is only going to increase savers’ pain,” says Charlotte Nelson, a Finance Expert at Moneyfacts.co.uk.

She continues: “Rates have tumbled since the last base rate change; for example, the average easy access account has fallen from 0.94% in March 2009 to 0.55% today, while the average two-year fixed rate bond fell from 2.83% to 1.31% over the same period.

How Will the Interest Rate Cut Affect You?

“The base rate cut does not necessarily mean that providers will pass on the reduction to savers, but seeing as rates are already dropping, this latest change will give them yet another opportunity to cut their rates. Anyone considering switching deals will therefore need to do so sooner rather than later.”

Mortgages

Could the interest rate cut be beneficial to those with mortgages?

Nelson explains: “Borrowers have already been enjoying some of the lowest rates on record, and the 0.25% cut to the Bank of England base rate will provide further impetus to the rate-cutting trend.

“Thanks to Government lending initiatives and falling SWAP rates, lenders are very keen to attract new customers and retain existing business, which is why the average two-year fixed rate mortgage has fallen from 4.79% in March 2009 to 2.48% today.”

She adds: “This cut in base rate will also be a significant boon to those currently sitting on their Standard Variable Rate (SVR). Based on the average SVR of 4.80%, today’s cut represents a drop of £28.64 to monthly repayments. However, with fixed rate mortgages still currently sitting at record low rates, borrowers may still be better off looking elsewhere and fixing to a new deal.”

Pensions

If you have a pension, Richard Eagling, the Head of Pensions at Moneyfacts, explains how you will be affected by the change.

“The interest rate cut is not only bad news for those pensioners relying on their savings to generate an income, but also for those on the verge of retirement who may be looking to secure an income through an annuity, as it’s likely to add extra downward pressure on annuity rates at a time when they are already at record lows. The greater demand for gilts could see yields fall further, and since these are used to back annuities, it seems inevitable that annuity rates will take a hit.

“An interest rate cut will also have an adverse impact on the already precarious funding position facing most defined benefit schemes, as lower gilt yields will increase pension liabilities. Employers will need to look at ways of addressing the greater pension deficits that this is likely to create.”

Property market

The founder and CEO of eMoov.co.uk, Russell Quirk, offers his insight into the interest rate cut’s impact on the property market.

He says: “Today’s cut in interest rates will come as welcome news to UK homebuyers, who will continue to enjoy rock-bottom mortgage rates as a result of this latest cut.

“The Brexit result brought about sensationalist prophecies of a less stable housing market and, as a result, many would have been deterred from buying. However, today’s news should come as a reassurance that the UK property market is in a more than stable condition.

“A cut in interest rates is the antidote for the post-Brexit worry and will, as a consequence, ensure that the UK economy continues to be underpinned by buoyant property prices.”

What do you think about the latest interest rate cut?

Buy-to-Let Mortgage Rates Drop to Record Lows

Published On: April 12, 2016 at 12:04 pm

Author: Em Morley

Categories: Finance News

Tags: buy to let mortgages,finance,mortgage rates,mortgages,pensions

Buy-to-let mortgage rates have dropped to record lows, according to data from comparison website Moneyfacts.

After learning that they will be hit with a reduction in mortgage interest tax relief and higher Stamp Duty, landlords have finally received some good news.

Figures from Moneyfacts show that mortgage lenders are cutting their rates significantly in order to encourage landlords to continue to invest in the buy-to-let sector, despite the changes.

Indeed, buy-to-let mortgage rates have been continuously decreasing over the past five years, with the fixed rate sector experiencing notable reductions. The table below shows the average rate changes across the market:

[table id=5 /]

Charlotte Nelson, a finance expert at Moneyfacts, explains the changes in the sector: “The buy-to-let market has faced intense pressure recently, but despite this, rates have continued to fall across all fixed sectors. For example, the average two-year fixed rate has fallen by 0.71% in just two years, while the average five-year fixed rate has dropped by an equally significant 0.76% over the same period.

Buy-to-Let Mortgage Rates Drop to Record Lows

“While the new rules and Stamp Duty changes could potentially take the shine off buy-to-let investment, property is often seen as a safe bet, and with rental properties in demand and rent high, buy-to-let remains an attractive proposition.”

Nelson also suggests that pensioners are boosting the buy-to-let sector, as many take advantage of the new freedom rules introduced in April last year. During the past 12 months, almost £3 billion has been paid out in cash lump sum withdrawals, according to the Association of British Insurers.

Nelson believes it is “highly likely that some of this money has been accessed with buy-to-let in mind.”

She continues: “Savings rates are currently so poor that many are looking elsewhere to fund their retirement, so lenders have tried to capitalise on this new pool of cash by offering some of the best rates the buy-to-let sector has ever seen.

“In addition, providers also cut rates in the run-up to the Stamp Duty changes in order to attract those keen to buy before they were implemented, which has further aided the downward slide in rates. However, while the current pressures on the market are not yet causing rates to rise, borrowers should remember that they will now be facing tighter lending rules, including stricter affordability checks, so it is even more important for potential landlords to seek financial advice to see if buy-to-let really is the right option for them.”¹

Despite many changes affecting the buy-to-let sector, including stricter affordability checks as a result of the European Union’s Mortgage Credit Directive, Nova Financial’s Paul Mahoney insists that buy-to-let “is not dead”, and explains how the forthcoming changes will impact your lettings business: /contrary-to-popular-belief-buy-to-let-is-not-dead-insists-finance-firm/

¹http://moneyfacts.co.uk/news/buy-to-let/buy-to-let-providers-slash-mortgage-rates/