Posted by admin
Wed, 21 Nov 2007 12:23:00 GMT
In recent years there has been a significant rise in the number of people who are choosing to use property investment as a means of provisioning for their retirement. The growth of the "property is my pension" brigade has been marked by a massive increase in the number of buy-to-let mortgages, from 185,000 in 2001 to 850,000 in 2006 (a near five-fold increase in five years) according to the CML. The chart below shows the change in the total number of mortgages outstanding since 1998 - as can be seen, most of the new mortgages that have been added since then have been buy-to-let (there are now 900,000 more buy-to-let mortgages, but there are only around 100,000 more non buy-to-let mortgages).
To put these figures in context, there are around 11 million mortgages in Britain, so the proportion of buy-to-let mortgages has risen from 1.7% to 7.7% in five years. This has, broadly speaking, been put down to two factors:
- The loss of confidence in traditional pension schemes, particularly since the 2000 dot-com bust and 50% fall in the value of the stock market.
- The large rises in both nominal and real-terms house prices since that time, and the associated media coverage.
The increase in the number of people buying second homes to rent out, as demonstrated by the increase in the number of buy-to-let mortgages outstanding, is nothing short of phenomenal. Given these figures, it would not be an exaggeration to say that Britain (or a large number of its residents, at least) is now a property-obsessed nation. The number of house-buying programmes on television is testament to that, and there are now enough to fill entire channels dedicated to property related programming.
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Posted in Main, Market Myths | Tags buy to let, housing market, investment, pension funds, pensions, stock market | no comments | no trackbacks
Posted by admin
Sun, 18 Nov 2007 23:00:00 GMT
In order to answer this question, first of all it is necessary to define what is meant by "investment". There are many definitions, but to illustrate what investment means in this context it is useful to contrast it with a few other things. Broadly speaking, there are three things you can do with your spare money (aside from spending it of course!):
- Saving. This means putting your money in a risk-free pot such as a savings account or government bond. Usually this is a long-term strategy, where money is put away for 10+ years. Of course you can withdraw money from savings accounts earlier than that, but usually you will aim to keep the bulk of your money in there for a long time.
- Investing. This means using your money to buy (hopefully) low-risk assets for the medium to long term, i.e. at least 5 years. You might expect some short term fluctuations in the value of your investment, but broadly speaking over a period of 5 years or more you would plan for little risk of losing money.
- Speculation. This is the high-risk option with potential for high short-term returns. You might double or triple your money over a few months or even days, but on the other hand you stand a not-inconsiderable chance of losing it all.
The important distinction with regards to housing is between investment and speculation. Investment means you must plan to hold onto the asset for at least 5 years, and seek to minimise risk. With housing, you can of course obtain mortgage borrowing to "leverage" the investment, but this multiplies the risk. For example, with only a 10% deposit and 90% mortgage borrowing, the risk of losing money is 10 times that of the risk in buying a house with no debt. This approach is speculative in nature, as the risk is arguably too high to qualify as investment.
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Posted in Main, Market Myths | Tags capital gains tax, housing market, investment, stock market | no comments | 2 trackbacks
