Reply to: Pension vs Property

[kaiser78]

A kind of dipping my toe in to test the water type question....

I've been paying about £1k per month into a ltd co. pension for the last 10 years or so. At present, this will buy an annuity of about £2k per annum (!).

I'm thinking of moving up the housing ladder & what I'm thinking of doing is ditching the pension contributions & sticking everything into the mortgage & take a punt on house prices continuing to rise.

I only intend working for another 8-10 years.

Yes, I should speak to my financial advisor but all he'll do is advise me to stick with the pension because it's in his financial interests to do so.

Any thoughts?

Don't go - please stay...the sensible answer is to have a balanced portfolio. Noone knows what house prices will do especially post brexit etc. I pay both into my pension and have a second property just spread things out a little.

[tomtomagain]

In my own case, I'm bunging a lot more money at my residential mortgage

That's what I did. Instead of a pension or BTL I just paid off my main mortgage. I was mortgage free by my 31st Birthday. Best (financial) thing I ever did.

My only worry is that all the baby boomers start popping their clogs.

That's not a worry. It's an inevitability. The boomers will be permanently exiting the housing market over the next 20-30 years.

[tomtomagain]

You could have made that statement any time over the last 15 years and it would still ring as true as it does today.

Absolutely right.

But no market is a one-way bet.

[shaunbhoy]

True, but the question is how long can a market stay irrational.

Well in the case of Blighty, indefinitely it would appear.

[The Plantswoman]

True, but the question is how long can a market stay irrational. The question is how much of an impact will the changes being made on tax relief on interest charges make...

In my own case, I'm bunging a lot more money at my residential mortgage & hoping the value of the property has gone up when I come to sell in 8-10 years time so the tax changes won't affect me in that respect.

That said, it's not just an investment; it's also a home. I need more space & need to be closer to a city so I will have to pay more. As a result, I won't be paying as much into my pension but the fact that my pot isn't performing well for me leads me to feel that it's not an entirely bad move.

My only worry is that all the baby boomers start popping their clogs.

[eek]

You could have made that statement any time over the last 15 years and it would still ring as true as it does today.

True, but the question is how long can a market stay irrational. And how much of an impact will the changes being made on BTL tax relief on interest charges make...

[The Plantswoman]

Yeah but you have to own a BTL and that is not completely "free" from additional work ( maintenance, repairs and PITA tenants ) and dealing with a lettings agents, who are only slightly above recruitment consultants when it comes to professionalism and trust.

Also if you only have 120k you are going to be pushed to find any BTL for that price today. 10 years ago maybe. Plus the tax advantages being significantly reduced over the next few years.

Taking the OP's original situation: Small, under performing pension, reasonable monthly contributions, should they switch from "pension" to property?

Personally I am not convinced. I certainly would not go 100% property ( I wouldn't go 100% anything ).

Property prices are sky-high. I don't think you'll find anyone who would argue that they are not overpriced and are currently supported by a strong economy, record low level interest rates and surging population growth driven primarily by migration.

If any of those 3 factors reverses then the prices may well come tumbling down. Has anything happened recently that could effect those trends?

You could have made that statement any time over the last 15 years and it would still ring as true as it does today.

[Platypus]

BTL in the North is what the Times says... especially in a student town. I think they identified Sunderland as offering close to 10% ROI

[tomtomagain]

£120k in a BTL would have given you £6,000/year rental income profit before tax, at a rough calculation, along with capital growth in many regions of the UK.

Yeah but you have to own a BTL and that is not completely "free" from additional work ( maintenance, repairs and PITA tenants ) and dealing with a lettings agents, who are only slightly above recruitment consultants when it comes to professionalism and trust.

Also if you only have 120k you are going to be pushed to find any BTL for that price today. 10 years ago maybe. Plus the tax advantages being significantly reduced over the next few years.

Taking the OP's original situation: Small, under performing pension, reasonable monthly contributions, should they switch from "pension" to property?

Personally I am not convinced. I certainly would not go 100% property ( I wouldn't go 100% anything ).

Property prices are sky-high. I don't think you'll find anyone who would argue that they are not overpriced and are currently supported by a strong economy, record low level interest rates and surging population growth driven primarily by migration.

If any of those 3 factors reverses then the prices may well come tumbling down. Has anything happened recently that could effect those trends?

[The Plantswoman]

£120k in a BTL would have given you £6,000/year rental income profit before tax, at a rough calculation, along with capital growth in many regions of the UK.

Oh well, I'll just have to find out when I can get my hands on it all so I can make alternative arrangements.

Any financial advisors offer their services here?

[ChimpMaster]

£120k in a BTL would have given you £6,000/year rental income profit before tax, at a rough calculation, along with capital growth in many regions of the UK.

[RSoles]

If you have made 120k worth of contributions into a pot for a decade that is only worth 100k then my suggestion would be to forget taking on extra mortgage debt for now and review your pension scheme.

Agreed.
Also forget annuities ( a 2% return, really?). Have a look into high yielding shares, you should easily get 5% return.

[tomtomagain]

Well what's the point of paying any more into a £100k pot that's going to pay out peanuts?

In answer to your question I guess I'll sell and down size again.

If you have made 120k worth of contributions into a pot for a decade that is only worth 100k then my suggestion would be to forget taking on extra mortgage debt for now and review your pension scheme.

[SimonMac]

£1k a month for 10 years should give you £120,000, if you are getting an annuity of £2k a year (based on average figures) your pot is still only worth £120k, so you have had zero growth over 10 years, (on the plus side you have had zero loss so that's at least something)

Not even MF is that tulipe at investing and he regularly buys Glencore!

[Wilmslow]

Fine, I'll just go and post somewhere else.

I'm not stupid, I'm not a sockie and if being here means conversing with rude clowns like yourself and "Mr Marky Mark" then I'm out.

As flounces go that is not the best I have seen, you could do a little better!

General is a bear pit - the other boards are more professional and tolerant. You have to toughen up and go with it in the General part of the forum - kind of like a rite of passage, and a coming of age.