By Ryan Smith
As young people, we’re always told to start thinking about our futures. Pension investments are one of those things that just seem so far away that it becomes difficult to comprehend as something we need to concern ourselves with right now. Reports state that young people are more interested in saving the money they’re earning to invest in a property; that first home is something we aspire to more than a pension fund. And while auto-enrolment is making it easier to at least start putting something away for retirement (alongside extra contributions from our employers and the government), property still might be the best investment.
Here are 5 reasons we think you should invest in property instead of your pension…
1. Property prices up 4.2% in 2014
In the 12 months between December 2013 and 2014, UK property prices saw an average yearly increase of 4.2%. Greater London saw the biggest increase at a whopping 11.1%, with the South East just behind it (9.5%) and the South West reporting increases of 6%.
2. Mortgage rates have fallen
Thanks to a combination of low inflation, a prediction of slowing economic growth and more Eurozone fears, Autumn 2014 saw a drop in mortgage rates. A healthy deposit is required but you can now get a 2-year fix below 2 per cent, a five-year fix below 3 per cent and even a ten-year fix at around 2.94 percent. It’s worth setting up a meeting with an independent financial advisor as they’ll be able to help you make the most of a property deposit while these great rates are available.
3. Generate an extra income
One of the more popular mortgage products on the market these days is buy-to-let mortgages. It may require a bigger deposit, and won’t be ideal for a ‘first home’ but it could be helpful for generating an extra income, particularly in later life. An investment in a buy-to-let property, with the combination of rent incoming and the increased value in the property could see a much greater return than the same investment into a standard pension fund.
4. A retirement nest egg
Those who purchase their first home between the ages of 26 and 35 are expected to be mortgage free by 61 years old. The average age of first time buyers has increased to 36, so it shows just how important it can be to get on the property ladder early. Not only will you be paying into your own bricks and mortar, rather than throwing money away to a landlord, by the time you retire you’ll hopefully have no mortgage left to pay. This leaves you able to live a more comfortable existence, or even unlock the value in the home by downsizing. If you have a number of rented properties you can also sell these to fund your retirement if you don’t want to continue on as a landlord.
5. New pension rules show uncertainty
With new pension rules coming into effect from 6 April 2015, the landscape looks blurry. Annuity rates are expected to fall, at least in the short term, so you may not get the best return on your savings. Some reports are even predicting that pensions may not even exist by 2050, due to young people’s disinterest in saving into funds they cannot access when needed. It’s always good to have a mix of investments, but a financial advisor who is independent and unbiased can guide you through the changes, and advise you on any questions you may have on finances, pensions and investments.
Ryan Smith writes for Local Financial Advice, pointing people in the direction of independent financial advisors in their area. The views of the author are his own and do not necessarily represent those of the Young Money blog.
What do you think? Do you agree? Leave a comment or get in touch – firstname.lastname@example.org.