UK property is a ‘valuable’ pension option

Tuesday 18th December 2012

With a growing number of people becoming disillusioned with pensions, stocks and shares often fluctuating like a very big rollercoaster, unfortunately one with more downs than ups in recent years, and savers receiving dismal returns from banks and building societies, more people are turning to property as a means of supplementing their income.

A stable income and a boost to insufficient pension provision are the two top priorities of buy to let investors wishing to make a new investment over the next twelve months, reveals Assetz in its annual Buy to Let Investor Survey.

Confidence in the UK buy to let market is robust, with three quarters of investors stating that they intend to buy additional investment properties over the coming year. Only 5% felt that now is not a good time to invest in residential property, the main reasons being the belief that prices have further to fall, difficulties in securing mortgage finance and, thirdly, concerns over the financial security of tenants.

Investors are taking a long term view, with 65% stating that rental income for retirement is their main motivation, followed by long term capital growth (27%). Just 8% cited short term capital growth as their reason for investing.

In fact, almost two out of three IFAs believe UK residential property would be a valuable investment option for pension investors, new research from housing investment and shared equity mortgage provider Castle Trust shows.

Its nationwide study of financial advisers found 63% believe access to UK residential property investment would help investors with pension planning.

However, 42% are concerned that the minimum investment required to invest in UK residential property, typically through buy-to-let, is a major barrier for most investors.

Around a third - 31% - of IFAs themselves currently invest in UK residential property excluding their own homes, Castle Trust’s research shows.

Stuart Law, chief executive of Assetz, commented: “Investors are very sensibly thinking long term, with their main goal being to supplement their retirement incomes, as annuity rates remain at rock bottom and pension income projections are cut. Those with a lump sum from savings, redundancy or inheritance are looking at what it will pay out in an annuity and seeking alternative options. Many people feel they are familiar with the property market and have faith in its long term growth and stability.

“Finance is still relatively hard to come by and lenders would rather allocate the limited funds they do have to the lower risk option of buy to let borrowers with large deposits and good repayment histories. The fact that interest rates have remained extremely low has protected landlords by giving them cashflow, and future rate rises, which are likely to be small and gradual, are likely to be covered largely by rental increases.”

Currently investors in Self-Invested Personal Pensions (SIPPs) cannot invest directly in UK residential property but can use Castle Trust’s HouSAs to invest in UK residential property from as little as £1,000. HouSAs are income and growth investment products linked to the Halifax House Price Index with returns that beat the Index, whether it rises or falls

Castle Trust’s HouSAs can be taken out for terms of three, five or ten years with investment from £1,000 to £1m.

The Castle Trust Income HouSA tracks any rise or fall in the Halifax House Price Index and also pays an annual income of between 2% and 3%, depending on the term of the investment. The Castle Trust Growth HouSA offers a gain of between 1.25 times and 1.7 times any increase in the Halifax House Price Index or a loss of between 0.75 times and 0.3 times any decline.

Sean Oldfield, chief executive officer at Castle Trust, said: “Financial advisers recognise the value of UK residential property as a valuable diversifier in a portfolio, but are concerned about having to invest in bricks and mortar to do so.

“House prices and household incomes are inherently linked over the long term making housing ideal for pension portfolios that need to keep pace with wage inflation.

“A fixed-term investment such as HouSAs can be used very effectively when you have a specific goal in mind, which is clearly the case for SIPP investors. They can include housing returns in their pension planning without having to consider downsizing their home when they stop work.”


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