Pension or BTL

justme111

Right, op does not believe what they said. Fair enough , numbers speak better than opinions.
What is your btl mortgage rate ? 5%/ish?
So you get 5% on this money if you put it into mortgage. If you put it into pension when time to retire comes the amount of pension that you will get in NHS scheme will be about double of what you would have got if you had that money invested in private pension. In calculation of investment returns the number of 5 % is often used as assumed average return. So it comes to 5% with mortgage versus double of it in pension.
That is my understanding of things and I am sure more knowledgeable people on here will correct me if I am wrong.
I think I understand why you fell more like property - it is tangible , easier to get your head round than pension and it is here now , not at some point in the future. Plus house prices inflation been here for many years.
Think - you already benefiting from equity increase due to prices rising already. You have btl already.

smerch1468

HappyMJ wrote: »

I personally think property is relatively cheap and not in a bubble for various reasons.

If property gets any cheaper BTL landlords will jump in and prop up the market. Returns on property are about 10%/year when leveraged with a mortgage and taking into account both rental income and capital gains you don't get returns like that in many other investments.

So you think £500k for a 2 bed flat that let's out at probably no more than £2k a month in London is cheap?

And any tenant who pays this amount would probably earn enough to get a sizeable mortgage on a property anyway.

This is the thing with property, in most peoples lifetimes it has only gone one way, up. People have short memories but in the 90s we had a very severe crash. For sure there is a bubble in the property market as we speak, interest rates will go up at some point and then things will get very painful.

It makes me very angry when people who are misinformed assume that the same thing will happen in the next 20 years as has happened over the last 20 years. Then you have the stability of a Final Salary scheme it gets dismissed. You couldn't make it up.

Andy_L

Kobi11 wrote: »

The groundswell of opinion here favours keeping a pension than a BTL, which on the surface, is a no-brainer.
The hypothesis for all this is having a career in the public sector for the rest of my life, or course tagging along the competitive pension. If this was in the 60s, I think it’s a fairly easy decision to make -Pension over BTL. These days, no jobs are guaranteed - which makes it the more trickier.

It used to be the case that final salary pensions favoured long stayers & career climbers over early leavers & plodders. Now that the NHS scheme is a career average not final salary scheme that no longer holds true, thus 5 years service at age 20 then leaving is a good a deal as 5 years at 62 & then retiring.

Andy_L

HappyMJ wrote: »

It's a risk you have to consider and take yourself. You've posted on the pension board. Most people here a pro-pension. I am not. I prefer property and cash savings despite the potentially lower returns. I don't think I would have anywhere near what I have made had I made higher pension contributions.

would that still be true if some kind soul had immediately trippled the money paid in to a pension though?

bigadaj

It's interesting the effect of nearly a decade of near zero interest rates have had.

Ten years ago anyone, and particularly professional economists, would have called you mad to see the way interest rates have worked out.

The effect has been to swell a set prices, primarily shares, bonds and property. Once interest rates return to normal levels we are looking at mortgage rates of what 7% plus.

This wipes out any btl profit and there will then be a spiral back down as people become forever lenders.

It will be painful for stocks and bonds as well but when you have a single non diversified asset that you can't afford to maintain then the value of that asset drops dramatically in any forced sale, particularly when there may be many others in a similar situation.

dunstonh

HappyMJ wrote: »

It's a risk you have to consider and take yourself. You've posted on the pension board. Most people here a pro-pension. I am not. I prefer property and cash savings despite the potentially lower returns. I don't think I would have anywhere near what I have made had I made higher pension contributions.

most people here are pro-common sense and do not have a bias.

if this was an individual pension with no employer contributions then a good argument could be made for property. However, to get the benefits of the NHS pension, then OP would have to spend around 25-30% of their income to match it. It is that valuable.

The tax offset of having the mortgage will still exist for basic rate payers. The interest rates are low. So, there is no compelling reason to leave the NHS scheme. Not unless you want to pay more tax and get less back in retirement.

PuzzledDave

Kobi11 wrote: »

In as much as house prices fall, they never fall flat. So with CGT, income tax, higher rate tax on the BTL, it still appears a though call to make based on the scenario I painted.

Two days after completion, you quickly furnish the house and notice it has new neighbours moving in next door. You recognise them from the local paper, they are the ones with seven feral children who make everyones life a misery. The parents both have convictions for ABH. You cannot rent out or resell the property no matter how much you drop the price by. The home is slowly damaged by the antics of the new neighbours.

You rewind time and buy a different house. Two days after retirement and banking on the rental income the mother of all storms arrives and the house is deluged. You had purchased insurance but the home needs total renovation, gutting totally, foundations and exterior walls. The home is condemend and cannot be lived in for over two years, you are responsible for rehoming the large family who hold the tenancy and your insurance company drags its feet over paying up. When they eventuly do when you win the final court battle five years later, the payout is below the total rebuild and other costs.


House prices nationally have been a safe bet. Pick a random house someone in the country... not so much.

smerch1468

bigadaj wrote: »

It's interesting the effect of nearly a decade of near zero interest rates have had.

Ten years ago anyone, and particularly professional economists, would have called you mad to see the way interest rates have worked out.

The effect has been to swell a set prices, primarily shares, bonds and property. Once interest rates return to normal levels we are looking at mortgage rates of what 7% plus.

This wipes out any btl profit and there will then be a spiral back down as people become forever lenders.

It will be painful for stocks and bonds as well but when you have a single non diversified asset that you can't afford to maintain then the value of that asset drops dramatically in any forced sale, particularly when there may be many others in a similar situation.

This is exactly the point. If interest rates no let me rephrase that when interest rates return to normality it will make BTL as a viable investment obsolete from both an income and capital growth perspective.

Yes stock markets will also be hit, BUT if you have the option to join a pension where as Dunston has pointed out the employer contribution is in excess of 15-20% AND your pension is not linked to Stock Market performance (it's underwritten by the taxpayer) why oh why would you even consider BTL.

Let's just put it this way not joining the pension scheme is like taking a pay cut of 15-20% pa, would you honestly be happy with that?

Thrugelmir

The NHS scheme also pays a cash tax free lump sum on retirement.

HappyMJ

Thrugelmir wrote: »

The NHS scheme also pays a cash tax free lump sum on retirement.

Is it worth taking any of it?

Give up £1 of annual taxable pension for a £12 tax free lump sum.