Why people are choosing property over pension for retirement


Current trends seem to indicate that growing numbers of people are favouring property as a means of providing themselves with a retirement income.

Right now, you can hardly blame them for turning to bricks-and-mortar instead of banking on a pensions pot, where returns depend upon the uncertainty of the stock market performance of investments.

Most people, on retirement, buy an annuity with their pension savings in order to provide them with an income. However, because of low yields on gilts and increasing longevity, that is an option that can represent poor value.

Little wonder then that even the Bank of England chief economist Andy Haldane has suggested that investing in property is a better bet for retirement planning than putting money into a pension. Though financial and pensions specialists did take him to task over his comments.

Latest statistics suggest that house prices rose only by 2.9 per cent in the year to July and some predict that prices will only rise by two percent over 2017 as a whole. However, when you see that house prices have increased in the south-east England by 37 per cent during the last ten years (with London price rises averaging 70 per cent), you can certainly appreciate the enduring appeal of property.

The rise of the buy-to-let market has been nothing short of phenomenal over the same period, giving property owners the added bonus of making significant returns from rental yields.

Who can say what will happen in the future, however?

Ten years ago, the property market was in over-drive and traditional estate agents – their online competitors hadn’t even been thought about then – expected house prices to experience major increases every year.

Then the credit crunch hit. People couldn’t borrow and so stopped buying, which in turn fueled the demand for rental property.

Another significant change came in 2014 with the introduction of the Mortgage Market Review, which basically ensured that borrowers could really afford their mortgage, both now and in the future.

Fears that tighter regulation would negate the market have not fully materialised, however, for the Council of Mortgage Lenders says that it has witnessed a drop-off in activity only amongst those wanting to remortgage while first-time buyers and home movers (the key drivers in market growth) have been largely unaffected. In June of this year, though, mortgage approvals fell to a nine-month low.

2014 also witnessed the introduction of Chancellor George Osborne’s reforms to stamp duty, which he said would benefit 98 per cent of householders – with only those buying homes worth more than £937,000 subjected to paying more in tax.

But by 2016, stamp duty receipts had fallen by 2.5 per cent and there had been a dramatic decrease in the number of high-value property sales, particularly in fashionable Kensington and Chelsea.

Today, the market in the capital appears to have stalled and property prices are being slashed in an effort to help buyers move up the housing ladder. A rare winner at the moment, it would seem, are rich international buyers benefitting from the weakened pound.

Looking to the future, analysts suggest that London prices will rise by 2.0 per cent in 2018 but predict a rosier picture for the South East and East of England with increases of four per cent next year and three per cent in 2019.

Such forecasts could, of course, be revised, especially as the UK faces so much economic uncertainty in the wake of Brexit and the General Election. But even though Chancellor Osborne – the voice of doom – predicted a drop of up to 18 per cent in house prices within two years of leaving the EU, there is no consensus that there will be a sudden fall or that Brexit will have any major effect on house prices.

Economic uncertainty, however, has meant that fewer homes are currently for sale and if the pound weakens further and there is a surge in inflation, with a subsequent rise in interest rates, then house price growth could be restricted.

And it’s always a matter of conjecture as to when there will be a rise in the interest rate. We all thought it was going to go up in 2015 but it didn’t happen because inflation suddenly turned negative. Then a rise in 2016 was discounted because the UK economy was not strong enough at the time – and, in fact, in August the rate was cut from 0.25 per cent to 0.25 per cent.

As the situation stands at the moment, a rate rise is expected some time next year. By 2022 the base rate could well be 1.25 per cent, although some analysts believe it could surge to three per cent before the end of the decade.

So what’s the best property investment at the moment? Well, obviously, that depends upon your financial resources. But just supposing you’ve no restrictions and you fancy getting into the buy-to-let market, then why not pick up a property either in Esher or Oxford.

They are the top two most expensive places in which to rent – a two-bedroom property demanding £1,913 a month and £1,612 a month, respectively. That’s considerably more than outer London, where rentals are currently £1,493 on average.

Investment in serviced apartments – expected to be the fastest-growing hospitality sector over the next two years – is also now an attractive proposition, especially with UK tourism expected to benefit from the post-Brexit economic climate.

For with the weakened value of the pound now forcing many families to holiday domestically, it also means that international visitors will be encouraged to take vacations in the UK through their increased purchasing power.

As to location, discounting the continuing allure of London, it was no surprise to see Bristol named this year as the winner of the Sunday Times “Best Places to Live” survey.  One-bedroom apartments start at £250,000 in new waterfront developments, while a penthouse will command £800,000.

But vibrant cities such as Birmingham, Manchester and Liverpool are now increasingly in demand amongst those who yearn to work, live and play in exciting urban environments.

Pensions, on the other hand, are still generally regarded as a “safe bet” because, by and large, there’s usually very little chance of ending up with less than originally invested.

For the moment, even though prices aren’t rising everywhere, investing in property would appear to be a very appealing option.


Jonathan Daines is CEO of

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