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We read the following article and upon reflection we see it as particularly floored due to small statistical errors.


What do you think?

Is property still a better bet than a pension?

Andy Haldane, the Bank of England’s chief economist, last year confirmed what many of us already knew – investing in property is a better investment for retirement than paying in to a pension.

When answering a question about preparing for retirement, Haldane told the Sunday Times: “It ought to be pension but it’s almost certainly property.”

Haldane, who owns two homes - one in Surrey and a holiday home on the Kent coast - pointed to the fact that there is a chronic housing shortage across the country which continues to place upward pressure on house prices.

“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.”

Investment returns from residential property - rental income and capital growth – has long trumped all other mainstream investments, including pensions.

But a fresh report published by ThisisMoney suggests that the tide may be turning and that pensions may be a better long-term bet than property after the buy-to-let market was hit by the loss of tax relief as well as wear and tear allowance.

Investing in a pension could now double the returns of bricks and mortars over 20 years as a direct result of the unfavourable tax changes affecting buy-to-let landlords, according to research by online investment company IG.

The study found that investing £200,000 into a buy-to-let property could see your money grow by 237% over two decades once capital gains tax is taken into account.

But a 40% tax payer could see potential returns as high as 435% if they put the £59,700 sum needed for a deposit on that property into a tax efficient self-invested personal pension instead.

The calculations are based on the buy-to-let investor taking out a 75% loan-to-value mortgage and stumping up an initial £59,700 for the 25% deposit and additional purchase costs, including stamp duty, while also factoring in average house price growth of 4.5% a year over the two decades, plus a rental yield of 3.5%. 

The total return after costs factored in for the investment portfolio was lower, with an assumption that the pension pot would generate an annual growth rate of 6% after fees over two decades.

Reflecting on the research, taking into account the phasing out of mortgage interest relief, the portfolio manager at IG, Oliver Smith, said: “There is a stark contrast in the tax treatment of a property versus a pension, with pensions winning out by a clear mile. The recent tax changes on buy-to-let properties will make a huge impact on the potential for long-term returns.

“While these changes are only being fully introduced in 2020, a chill wind is already sweeping through the buy-to-let industry.

“Savers need to remember that every pound spent on purchasing a buy-to-let property is paid out of net income and the tax changes mean that if financing costs rise, landlords will have to shoulder higher costs and consequently receive a lower net of tax income on their properties.”

A separate report from the National Landlord Association (NLA) last week said that the plight of landlords suffering from recent fiscal changes could create the ‘next pension crisis’ as many individuals are becoming over-reliant on property to fund their retirement years.

Richard Lambert, CEO at the NLA, commented: “As a consequence of government policy over recent decades almost two million people are reliant on their property to fund their later years, but the changing tax regime will substantially reduce the income they receive from these investments and so compromise the retirement plans of a significant number of hard-working people.

“Around a quarter [27%] of UK landlords are already retired, and 37 per cent are aged 55 or over, so there is a pressing need to tackle these issues without delay”.




In short we agree that Andy Haldane, the Bank of England’s chief economist, appears to have a good grasp of what makes optimum returns, property.


Immediately questions arise from the basic statistics in this article e.g.


What is the basis for the 6% p.a. average long term pension growth? Acknowledging last years better performance while still reflecting on that growth being half of other years losses in the past decade the typical 60:40 equities and bonds pension portfolio has historically achieved 4% after inflation and many commentators forecast that future returns will be lower than in the past.


Why has the long term average UK capital growth been dropped from 8% to 4.5%?

(Nationwide’s statistics recorded since 1952 show 8% p.a.)


Why has the UK average rental yield been dropped from 5%+ to 3.5%?

Countrywide new letting figures and Nationwide house price data show an average UK BTL yield to be 5.3%.

Savills have quoted conservative net rental yields: ‘allowing for costs and void periods, the average net yield for typical private landlords comes in at around 4.1%.’


Would a property professional like you look for these low returns in a portfolio addition? Or significantly better via Earnest Knight?

We think the publisher is irresponsibly massaging statistics to sell pensions here. What do you think?


A balanced property portfolio addition would look to provide 5%+ rental yield and of course, as Nationwide long term growth statistics show 8% p.a., well in excess of the conservative 4.5% growth figure. The combined BTL property returns total well in excess of the diminishing 4% or even the enhanced 6% pensions return quoted in the article. I can hear the accountants mumbling something about tax, which is very dependent on your own personal circumstances and adequate tax planning, so to give a rough indication lets lok at an overly simplified calculation; 8% p.a. growth + 5% p.a. yield = 13% (less 40% or 5.2%) = 7.8%. I've spoken to many investors that after adequate tax advice from a qualified specialist utilize allowances fully, spousal transfers, family trusts, SPV's and LTD companies to name just a few tax efficient strategies to become as profitable as possible, raising their returns over all.


The part that we find most interesting is at no point does anyone mention in the article the potentially devastating effect of interest rates, which have been at an all time low for long enough now for newer investors to see them as normal. Maybe this is due to the changes in lenders criteria and the exceptional long term fixed rate products available at present. Even substantial lenders, like Barclays, are offering under 3.5% interest rates on a 75% LTV BTL mortgage fixed for 10 years. Some investors may have decided already that leveraging is not as safe as it once was, especially those with lower yielding London based portfolios. There are alternative ways to profit from property that do not involve the lending and interest rate risks or the costs that eat into your profits from large financial institutions or funds.


Equally for those who have sizable portfolios and have hit lending limits their strategy has to change. There is good news for these investors, there are new opportunities arising from alternative strategies based around your well known and trusted to produce BTL. For many reaching lending limits adding value, HMO conversions and development have become their optimum choice. Although for some investors the time involved and risk factors of these property investment projects do not match their investment profile or the time they have available. This has created a significant demand for investment products that beat inflation and bank returns with the security of an asset base and without the need for traditional lending or the hands on approach that adding value projects entail.


If you are looking for this type of investment and have upwards of £1,000 to invest on a medium to long term basis call 0208 6109 472 or email for further details.


An informed investor is a successful investor!

For the current research results and the best choice of property investments, as selected by property buyers, in the UK market do not hesitate to contact your Earnest Knight Consultant today

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