Pension investors turn against property

carolt

Apologies if posted elsewhere:

http://www.timesonline.co.uk/tol/money/pensions/article4416706.ece

"Homeowners have fallen out of love with using their property as their pension as the housing-market downturn has taken hold.
Around 40 per cent of homeowners say they are less confident about using equity in their homes as part of their retirement savings, according to a survey from MetLife, a pensions company. Nearly a third are much less confident than they were a year ago, the research shows.

The survey came as the latest house-price data from the Land Registry showed a further deterioration in the market. Prices fell 1 per cent in June to £180,781, the tenth consecutive decrease. In London, the decline was even sharper with a 2.5 per cent fall.
About 16 per cent of homeowners are depending on the accumulated wealth in their property for their pension, according to research by Business Development Research Consultants, which provides data to FTSE 100 companies. With 18.5m owner occupied houses in Britain, that's 2.96m households.

...

Many homeowners planning to retire in the next year or two are being advised to downsize sooner rather than later. Roger Bootle, economic adviser to accountants Deloitte, expects UK house prices to fall by around a third by the end of 2010.

..."

mr.broderick

Another interesting link carol.
My dad purchased his sister's house in 1981, they emigrated to spain, paid £35,000 for it. He was made redundant and got a £30,000 pay off so decided to buy it as an investment. Sold it in 2006 for £176,000.
Not a bad return. Haven't looked in to it to see if there was another investment vehicle that would have returned a similar amount.

EdInvestor

The big problem at the moment of course for 'property pension' people is the lack of liquidity in the market, rather than lower prices. Mind you since the purpose of a property pension is to provide a retirement income, they can always just rent out the property.

ManAtHome

"An investment of £1,000 at launch in December 1979 may well be worth about £130,000 today"... (story from June 2006).

http://www.moneyweek.com/file/14853/what-to-buy-as-bolton-passes-on-the-baton.html

neverdespairgirl

mr.broderick wrote: »

Another interesting link carol.
My dad purchased his sister's house in 1981, they emigrated to spain, paid £35,000 for it. He was made redundant and got a £30,000 pay off so decided to buy it as an investment. Sold it in 2006 for £176,000.
Not a bad return. Haven't looked in to it to see if there was another investment vehicle that would have returned a similar amount.

£35k invested in 1981 would have amounted to £200,390 at an average compound interest rate of 7%, and £156,390 at 6%.

dopester

EdInvestor wrote: »

The big problem at the moment of course for 'property pension' people is the lack of liquidity in the market, rather than lower prices. Mind you since the purpose of a property pension is to provide a retirement income, they can always just rent out the property.

The two issues are directly related.

Lack of liquidity in the market will bring about lower prices.

Your renting them out solution (presumably until price recover in what you expect to be a short-time-frame) is so pitiful and so blind to the dire economic set of circumstances we have entered.

UK house prices are preposterously over-valued, and the crash will reflect that.

You can't have a UK bank going under and others having their very solvency questioned and expect house prices to remain at these levels.

They need £40 BILLION a year just to service the mortages they've already got on their books... before finding any further monies to FTBs.

You'll be waiting decades matey for your recovery, and the crash hasn't even really gotten started yet as I see it, but is really coming hard.

mewbie_2

neverdespairgirl wrote: »

£35k invested in 1981 would have amounted to £200,390 at an average compound interest rate of 7%, and £156,390 at 6%.

Being a bear of little brain I am not sure what that 156k would be worth now (ie. what it could buy) - more than or less than 35k? Pensions are frightening.

neverdespairgirl

mewbie wrote: »

Being a bear of little brain I am not sure what that 156k would be worth now (ie. what it could buy) - more than or less than 35k? Pensions are frightening.

In 2006, £35,000.00 from 1981 was worth:

£92,708.24 using the retail price index
£92,614.83 using the GDP deflator
£143,083.17 using the average earnings
£167,284.60 using the per capita GDP
£180,273.77 using the share of GDP

Trollfever

In the olden days pension funds were built up over a 30-40 year period and folks aimed to retire debt free.

EdInvestor

dopester wrote: »

Your renting them out solution (presumably until price recover in what you expect to be a short-time-frame) is so pitiful and so blind to the dire economic set of circumstances we have entered.

Perhaps you don't understand what pensions are for.The idea is you save up a lump sum of money in the fund and then it provides you with a retirement income. You can do the same thing in an ISA. Or you can do it with a property.

Many better-off retirees have let out property to provide retirement income for years,it uses up the wife's tax allowances. The capital value often isn't really relevant as it is seen as part of an inheritance for their children in the long term.

It's the same with shares where people draw dividend income.Fluctuations in the capital value don't really matter.

Leighthal

Trollfever wrote: »

In the olden days pension funds were built up over a 30-40 year period and folks aimed to retire debt free.

But this is the Newden days?People want to retire younger and richer(debt free atleast)!