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Prime investment ‘Property in the UK’ on the radar of Buy-to-Let Pensioners

Tuesday 7th April 2015


Some great news for established property investors in the UK market sees a new and potentially massive boost to the property prices in the following term, as of today retirees are able to take money out of their pension pots and invest as they like.

Those retirees who are able to take money out of their pension pots this month can be confident that if they choose to invest in buy-to-let they are likely to see strong returns.

An estimated 200,000 retirees are expected to cash in their pension this April and the latest research by IPSOS MORI suggests over 15% will choose an investment in property.

Recent analysis from the Halifax suggests UK house prices are firming, while various experts expect house price growth of four percent in 2015.

Now, whether you are a retiree or just a smart investor, this is great indication of the potential for property price growth, particularly if we see demand by aforementioned investors increase.


Why should I move more of my pension into property?

UK pensioners now have the freedom to invest their life savings as they please. Also a pension transfer is as normal and frequent as a re-mortgage these days.

Final salary pensions are few and far between and less guaranteed pension income is available. People searching for the best pension investments on the market are finding big returns from an investment in property highly attractive.

To help you understand why more and more people are moving their money into property it helps to see the returns it has made.


How property investment has performed in the past

Since the birth of the buy-to-let mortgage in the 1990’s, buy-to-let investments have provided average returns that easily outstrip those of other major asset classes.

Every £1,000 invested in an average buy to let property purchased with a 75% loan-to-value mortgage in the final quarter of 1996, when buy to let was first actively promoted, would have been worth £14,897 by the final quarter of 2014, a compound annual return of 16.2%. 

The same investment in UK commercial property would have grown to £4,494; in UK government bonds to £3,329; in UK equities to £3,119; and in cash to £1,959. 

A buy to let purchaser buying entirely with cash would have seen each £1,000 invested grow to £5,071 by the end of 2014, a compound annual return of 9.4%.

The Bank Of England base interest rate being at the low level of 0.5% coupled with the competition between mortgage lenders means there are again falling mortgage charges and longer fixed rate deals.


Quick Chart illustrating today’s value of £1,000 invested at the end of 1996:

1000 since 1996


The UK property market is at a defining point right now

Recent financial data has shown that property prices in London have stalled in recent months where prices have been growing rapidly for a substantial period of time. This has raised concerns about the future direction of London house prices, but London house prices can never be under-estimated. It would be worth most considering balancing their portfolio for both income and growth by investing inside and outside the Capital to ensure the projected risk level is as attractive as the projected returns.


Interest rates are low now, but will they be forever?

Current low interest rates and their influence on the lack of return from savings has sent many people on a quest for returns that beat inflation. Be responsible and consider the past and the future, this unique financial environment must not lead you into making a big decision which you might regret in the coming years should the interest rate environment become more favourable to savers and less favourable to buy-to-let investors. Changes to interest rates might not only affect your potential yield but it could also affect your capital investment if prices were to drop due to higher rates and further tightening in mortgage lending availability and criteria. All of these factors can be managed by investing with the right structure.


Don’t want to be an active landlord?

Good news you don’t have to be. The UK market allows for professionals to be organized with relative ease to collect the rent on your behalf for a fee. Investing in property can be relatively to completely hands off as an investment. You can be hands off by sacrificing some of your yield and place your property into the hands of a rental agent or into a portfolio with an asset management company. Doing this will see the day to day and week to week tasks performed by someone else for a fee but you would need to take further measures at further cost to be shielded from some of the other fiscal problems that landlords can face e.g. landlords insurance or guaranteed rent to cover tenants who don’t treat your property with the respect that it deserves or who don’t pay their rent. It’s true that there are many successful landlords out there and these would advocate property as a great investment having enjoyed the returns it provides. Being a traditional landlord isn’t for everyone though, take the time to discuss the techniques and the premise during a free Earnest Knight consultation before investing your cash or pension into property.


Call Earnest Knight Consulting on 0208 6019 472 and start taking control of your future, through a no obligation and completely free consultation today.

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