Using property investment to boost retirement finances
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Finance expert Peter Sharkey asks if working from home novelty wears off, are offices a good investment?
Following a week in which we appeared to edge closer toward the pandemic end-game, activating a much-needed sense of national delight as the first Covid-19 vaccines were administered, can we now contemplate a wholesale return to places of work for millions of people?
For almost a year, the depressing sight of shuttered shop fronts and eerily vacant office space has become commonplace, another unwelcome piece of the ‘new normal’ jigsaw. And, as millions of people became used to working from home (WFH), a number of commentators concluded that stand-alone offices and those situated above large, city centre retail stores should immediately be converted into residential space.
Then September arrived and most children returned to school; almost immediately, the flow of workers back to their desks began gathering pace. With children back where they should be, is the WFH novelty wearing off?
Those who prefer keeping their pyjamas on and working at home should have little difficulty continuing to do so for the time being, but there’s plenty of evidence to suggest that post-vaccine, the steady trickle of returning workers will become a flood, reinforcing a widely-held belief that social interaction is a big part of going to work, especially among under-35s.
For many folks this may sound sacrilegious, but it might not be too long before offices are once more humming with the sound of workers interacting and, crucially, sharing ideas on business development, new products and a host of other topics it’s difficult to address spontaneously at a Zoom meeting when WFH. Especially if you’re still wearing a dressing gown.
Proclaiming the demise of the office may, therefore, have been a tad premature and investors in agreement may believe that this is the ideal moment to consider investing in the UK’s office market via one of the larger collective property funds.
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If that sounds a little too adventurous, how about residential investment? Statistics show that residential property prices have, rather unexpectedly, risen since March. A large proportion of this rise is attributable to the much-heralded Stamp Duty holiday, which ends on March 31, 2021, with buyers inadvertently driving prices upwards in an attempt to save substantial sums of money.
Some experts expected residential property prices to cool early in the new year, but the emergence of a vaccine has injected fresh confidence into the market. Accordingly, property values could remain buoyant for the foreseeable future, thanks to the availability of competitive mortgages and historically low interest rates.
Yet private landlords have taken a hammering over the past few years, prompting thousands of them to walk away from the buy-to-let market, frustrated by a costly combination of a stingingly high stamp duty and the phasing out of a series of once generous tax breaks. On top of this, the Treasury’s most recent unemployment forecast suggests that 7.5pc of the adult workforce will be out of work by mid-2021, hardly a ringing endorsement for property investment.
Nevertheless, outside of London, rent levels have edged upwards this year, in keeping with a decade-long trend as tenant demand has remained constant.
Between 2009-19, average rents grew by 23pc, only marginally higher than the increase in wages over the same period. Subsequently, rental yields on good quality investment property continue to pepper the 5pc mark, a significant premium to that available on deposit, even after management costs and periodic voids are taken into account, further enhancing the appeal of property as an investment.
Indeed, low interest rates effectively drive property prices higher because they make mortgages more affordable, in much the same manner that a lower discount rate raises the price of an asset by increasing the present value of its future benefits.
It follows that a sustained period of low real interest rates will continue to boost demand for rented accommodation. There are, of course, myriad factors which influence such demand, but should it remain stable and the supply of good quality property coming to the market is similarly steady, rent levels appear likely to continue moving upwards.
Perhaps the most significant benefit associated with a direct investment in property has become more evident over the past nine months as stock markets have undergone a periodic phase of whiplashing volatility: property investment enables investors to diversify their portfolio.
In fact, it could be argued that a large number of landlords are less concerned about a property’s headline yield and more interested in using rental income to pay off their mortgage, preferring to secure capital appreciation over the longer-term. The old adage: “You’ll never get rich on rental income” continues to resonate, because it’s the prospect of capital growth which appeals to investors.
Are your retirement finances likely to be affected by the pandemic’s devastating impact? If so, you may wish to consider accessing the wealth accumulated in your property, but how much could you release from your home?
The figure is determined primarily by your age, health and your property’s value, which must be at least £70,000. These are the principle requirements, although alternative options exist based upon personal circumstances. You can get a very good idea of how much equity you can release by visiting the Moneymapp.com website and filling out the equity release calculator.
It’s worth noting that equity release isn’t a panacea. It’s not suitable for everyone and it may compromise your eligibility for means-tested state benefits.
As many readers have already discovered, there’s a wealth of information to be discovered at: https://www.moneymapp.com/equity-release. In addition, there are hundreds of blogs and articles dealing with the subject on the MoneyMapp website, including Peter Sharkey’s weekly blog, rated among the UK’s very best. Read more at: https://www.moneymapp.com/blog
You may still email any queries or questions regarding equity release to: email@example.com
Please note that Moneymapp.com cannot advise readers on whether equity release is suitable for them. However, Moneymapp.com can introduce readers to professional advisers who will explain the process and its implications for your estate and entitlement to means-tested state benefits.
Are you eligible for equity release?
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