People are increasingly turning their backs on traditional pensions in favour of property investment to fund their retirement, according to new research.
The value of the buy-to-let mortgage market rose 126% between 1999 and 2001, reports market analyst Mintel. Its survey found 46% of people consider property a safer bet than equities, with 42% saying they would consider investing in it. As a result, Mintel forecasts an increased use of buy to let to fund retirement.
However, Mark Smitheringale, head of corporate communications at Skipton Building Society, is wary of banking pensions on property.
‘People have to be very careful about using this type of investment as a pension,’ he said. ‘While it is clearly attractive at the moment, if there were a major downturn in the housing market people would find themselves in a difficult position. It would be more reasonable if it were used to supplement other pension arrangements.’
The Mintel report says that low interest rates, rising house prices offering capital appreciation and increasing demand for rental properties are an attractive incentive. However, it also notes that long term house price increases tend to lag behind the FTSE 100 and although rents have doubled in a decade, overall yields have been falling.
But John Heron, managing director of Paragon, believes yields are not the only benefit of buy to let and gearing needs to be taken into account.
He said: ‘The returns from buy to let consist of rental yield and capital appreciation and a mortgage allows you to gear up the return relative to the capital invested. It is this that makes the buy-to-let sector attractive. People invest in property because they perceive it as a more stable and reliable investment than equities. It is true they are judging that over the relatively short term, but it is not surprising people make choices with reference to what they see today.’