Whether you loved him or felt otherwise, under Mr Gordon Browns influence the property industry, a critical money earner for every Government, was battered and bruised during his tenure as Chancellor and Prime Minister. 

 

Now under our newest Government, Housing Minister Grant Shapps has caused a foror by suggesting homeowners must not rely on their home as their pension. For reasons set out below we agree with Mr Shapps however, he has declared intentions for Government to keep property values rising slower than incomes thus, preventing further housing boom and bust, to favour the first-time buyer.

Providing first-time buyers any helping hand is a laudable sentiment. Apart from yet more fidling from Government within the property sector however, one wonders how Mr Shapps will dictate house values?

 

One method might be to built an abundance of new homes so suppressing property value growth through choice. That will probably work to a degree: supply and demand and all that. But, this weeks revealed plans to cut social housing spending by a massive 80%, on top of the announced new-build cut-back of 60%, seems to slap that idea in the face at outset. 

The Housing Minister however, also believes he could use economic policy to subdue property value growth rates.  One imagines, this may include forcing the Bank of England to raise Base Rate so high as to frighten people into trading down, just to survive. But who will buy these more-expensive-to-maintain-properties to allow overstretched families to move? 

I recall the double-digit-days of mortgage interest rates during the eighties, when everyone in the UK with a mortgage sweated profusely and survived on beans on toast for a while. Did this stop property values from growing more than incomes? Not a jot! In the decade that followed, property values doubled and more! 

But let's return to the rationale behind Mr Shapps proposition, My Home Is Not My Pension.  Leaving aside his ~ and every Governments ~ politically correct declarations to curb boom and bust, is it wrong to shun Pensions in favour of bricks and mortar? With Labour's derisory treatment of pensions and an unimpressive stock-market performance in recent years, one can see why income earners might choose additional property over pension premiums.

 

During any recession, property values suffer along with every other type of investment, but bricks and mortar tends to bounce back a lot quicker. Through the past four recessions (1978-2008), residential property has still doubled in value about every 10-years! So much for economic policy, good or bad, curbing property values!

But if most of one's wealth is tied up in the home lived in, accessing income will be a tad tricky. Selling up is an obvious solution to release cash to invest for income but statistically not many people are prepared to downsize at retirement? While some happily will sell up, others just won't willingly want to leave the family home of many years. 

Historic growth in property values makes our investor/landlords very keen to continue investing hard won money in properties.  Much of the buy-to-let boom is down to investors looking for an alternative answer to vulnerable pension returns and rental property continues to generate inflation beating income throughout retirement.  Of course, individual property may also be sold to generate cash injection. After all, a BTL portfolio isn't the roof over your head so it may be a practical option to sell some of it from time to time.  Not so the case with a main residence, your home.

As an alternative to selling up, you may free some of the value trapped within your home (its equity). More and more people remortgage into retirement to help cope with the rising cost of living and any number of lenders will allow this to age 75. This only works of course, if you have adequate income to cover the monthly repayments. If however, you are planning on releasing equity to purely supplement falling income, a lender is less likely to agree.

The Equity Release Plan is another solution designed to raise cash from your home but has its downsides too.  It is expensive for one thing as you have to pay much higher market interest rate for the privilege of borrowing the money and, the property is intended to be sold to repay the debt following the death of the policyholder(s), which means your family loses part or all of their inheritance.

Building a Below Market Value (BMV), Buy-to-Let (BTL) property portfolio is more straightforward than most people think and a way for you to directly control your income now and in retirement. You are not reliant on the strengths or weaknesses of pension fund managers, but enjoy your own capital growth for the future whilst you service any mortgage and on-going expenses through rental income (see Blog and News 7th October 2010, Letting An Improved Year). 

Ploughing your savings or new inheritance back into your home by building on clever extensions or undertaking attractive landscaping will only yield so much perceived extra value in the same property. Whilst it might make you feel-good in the short term, banking on your improved home to be worth enough when you arrive at 65 (or will it be 67?) is a high-risk strategy in a single property.

 

If you aren't willing to downsize to release cash at retirement or if your home doesn't increase enough in value to provide a decent capital sum to allow you to pay off the mortgage, buy something smaller PLUS top up your shrinking income, it just can't work.

We are here to help investor/landlords buy any number of lettable, family homes typically at 25% Below Market Value for less than £6,000 each (without deposit)!  Enough said!

Call John on 0203 239 4359 to explore your options and secure your financial future.

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