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Real Estate Investment
As a result of budgetary changes in March 2014, more pensioners are investing in residential property as part of their pension pot than ever before.
Drawn to the asset by the fact that real estate has shown to be the best performing asset over the past 30 years, pensioners are exercising their freedom to choose investments that will generate the healthiest income in later retirement.
With life expectancy in the UK at an all-time high and rising annually, pension pots have been running out prematurely and not providing the income expected which has made retirement financially difficult for some.
However, since the changes increasing numbers of savers have been seeking alternative forms of investment to fund their retirement. Property investment has provided many retirees with a secure source of regular income and has removed the risk of funds running out during retirement.
Residential property has proven to be an asset that out-performs every other asset class consistently year-on-year. Property also grows in value over time and as such, makes the perfect investment to hold on to for as long as possible. An asset like residential property will provide a much stronger, more secure income over the course of retirement.
British pensioners have also been increasingly turning towards equity release which allows them to raise funds on their property without moving home, freeing up capital to re-invest in residential property and increase their income during retirement.
A key attraction of residential property to long-term investors is that the income stream from housing is linked to wage growth and can offer investors an even better hedge to their liabilities than commercial property which is more closely linked to the slower growing retail price growth (RPI) and other property market indicators.
There are also more bargains to be had with residential investments as they are generally sold at a discount to vacant possession value. This represents the amount that would be achieved if the property were sold vacant on the open market to an owner-occupier.
In other words, residential property prices are driven by the owner-occupier market and do not correlate to demand from residential property investors. If at the point of purchase the property is let on an assured short-hold tenancy, the value of the asset will be discounted.
Reduced affordability in the UK has also impacted the residential property investment sector as increasing numbers of pensioners purchase properties specifically to rent out to their offspring or assist in the purchase of their first home to get them on the property ladder.
Although there has been widespread criticism, it is much easier to raise mortgage finance on a property that is not going to be owner-occupied. Loan to Value (LTV) is also at a higher level for buy-to-let mortgages with lower deposits payable.
This makes the market a very cost-effective way of providing homes to younger family members while generating an income and increasing capital values for an existing pension pot.
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*This page is provided for information purposes only and should not be construed as offering advice. IPIN is not licensed to give financial advice and all information provided by IPIN regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.