The Bank of England’s Chief Economist Andy Haldane got himself into hot water in the press last month when he suggested that property is a better investment for retirement than a traditional pension.
Speaking to the Sunday Times, Haldane said that while a pension should be the top way to save for retirement, in reality it was “almost certainly property”.
He continued: “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.”
Haldane was criticised by many within the pensions world for his comments. But it’s not difficult to see why property is such a popular supplement to saving in a pension, if not a replacement for it.
Why property is a popular investment for retirement
The housing shortage in the UK has seen house prices rocket in recent years. According to Nationwide Building Society, the average house price in 1996 stood at around £55,000. Today the average stands at more than £204,000. Few other assets have seen similar growth.
Is this a bubble about to burst? It looks unlikely. According to the House of Lords Select Committee on Economic Affairs, the UK needs 300,000 homes a year to meet demand and have a “moderating effect” on house prices. But we aren’t coming close to that figure – last year around 170,000 new homes were built in the UK.
The significant imbalance between supply and demand will only support further house price rises and rental growth, meaning property will continue to appeal to investors.
The fact that property is a physical asset, that you can see and touch the bricks and mortar that you have invested in, is also a positive for many.
Investing in property is not as attractive as it was
Despite all that, investing in one or two buy-to-let properties in order to supplement your pension has become less attractive.
Back in April, the Government introduced an additional 3% Stamp Duty levy for second homes, which makes that initial investment far more expensive.
Here is how the Stamp Duty bill has changed across a range of purchase prices as a result of the new additional charge.
This is to be followed by a reduction in the tax relief available on buy-to-let mortgage interest repayments.
Professional landlords may be better placed to absorb these extra costs, as they are able to factor it into their business expenses. But for the amateur landlord, the sums may no longer add up.
There is another way.
However, buy-to-let is not your only option if you want to invest in property.
Investing online in property debt is an excellent alternative, offering a great return on your investment but without a lot of the headaches and hassles that come with life as a landlord.
With LendInvest you can invest in secured mortgage loans and enjoy regular returns on your money. That money is lent out to property entrepreneurs looking to fund property purchases, renovations and developments.
On the online investment platform, investors are presented with a range of different mortgage loans to choose to invest in. To date, those loans have delivered an average annual interest rate of 7.2 per cent. What’s more, investors begin earning interest from day one as those loans are entirely pre-funded before becoming available on the platform.
When the loan comes to an end, the borrower repays and the investor’s capital is returned to them, alongside any remaining interest. That can then be withdrawn or reinvested.
Unlike investing in a buy-to-let property, investing through LendInvest will not incur any Stamp Duty bills, nor will you have to worry about finding a reliable tenant or late-night calls about emergency repairs. What’s more, you can build a portfolio of investments, spreading your risk, for a fraction of the cost of putting together a traditional buy-to-let portfolio.
All loans are secured against the borrower’s own property. That means that if they fail to keep up with their repayments, LendInvest can take possession of the property to recoup any losses for investors.