Effect of Pension Release on the BTL Market

Reply to the comment left by "Ian Ringrose" at "18/03/2015 - 14:10":

Gearing makes it more appealing I agree. But that misses the point. Without gearing it is still much more appealing than an annuity

Each property should yes stand alone as a successful business without any borrowing.
Gearing only multiplies the gains through compounding.

An example...

Jan 2015 I bought a 2 bed shell for 85K cash. Rents for £650 pcm 7K spent on a refurb so 92K spent. Return is 8.4% gross. Lets call it 5.7% net though so it equates to your annuity.
Because of the added value I could sell that now for say 100K so thats an 8K gain.

In a years time if prices go up 5% thats another 5K I`ve made on paper. Thats a 13K gain over and above the annuity return with no borrowing or gearing needed.

Gearing simply allows me to accelerate my growth and accelerate my gains.
I don`t need it but it certainly helps.

The mortgage market does reduce as you get older but again there are many that do lend. All things are possible its not a blocker to success.
TMW lends. I`m 56 I went part time in 2005 aged 45 ( as my property income overtook my day job and some ) I then fully retired in 2011 . Ive bought 4 properties since retirement The longest term date is 2034 when i will be 75. TMW lends up to age 90.

Being `old` does not preclude you from becoming a property investor who gears.
My best client was 62 when he started and bought 18 properties through me worth about 1.5 million.

Therefore you can gear aged 55.
How much you choose to gear depends more on your risk profile than your age

Property borrowing is not that ageist
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Remember that an annuity is not a sensible option at 55, you should be comparing with income drawdown keeping the funds remaining invested in the stock market. Also the funds should be chosen with the same care as someone would choose their property consultant. So comparing top BTL returns with average fund returns is not valid.

The problem with mortgages is that regardless of the length of the mortgage you have to plan to get a new mortgage as soon as the fixed rate comes to an end, as lenders cannot be trusted not to put up their SVR. By then TMW may have changed it's lending policies.

Reply to the comment left by "Ian Ringrose" at "18/03/2015 - 15:26":

Why isn`t comparing BTL with an annuity not valid.? Surely its perfectly legitimate to point out the pros and cons in both investments lay out the figures then people can make their own decisions as to which is best
( That wasnt a top BTL return btw just a relatively average example)

Social media is great at slowly drawing out true comparisons between investments as it can go on for days or months. Far better than a 30 min interview with an anonymous IFA who will only be able to impart limited knowledge and will deliver a perhaps unnoticed and unintentional bias .

An SVR is an SVR. You factor that in as you factor recessions in and interest rates rises and falls and property prices rises and falls. Contingency funds and insurances and boilers blowing. Chuck it all into the mix. But still its valid to compare the two - in fact its essential

One of the reasons I got into BTL was because the returns compared so well with other asset classes or indeed fixed investments.

So I urge anyone to really interrogate any advice they are given and look at the credentials pedigree and agenda of that person who gives that advice. I went through about 7 IFA`s before I met one who hit the spot for me. When the penny dropped with them on my projected business plan I relaxed as that part of my jigsaw was complete.

Give me 125K and I firmly believe I will make more through property than an annuity. See you in 25 years.....
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-> Why isn`t comparing BTL with an annuity valid?

Because income drawdown leaving the pension invested in the stock market is much more likely for anyone with a bit of understanding and willingness to take risks.

(Annuities give such low return because the providers can only invest the money in thing like gilts, as they are not allowed to take any risks.)

Reply to the comment left by "Ian Ringrose" at "18/03/2015 - 16:23":

Are you sure about that Ian.

What is the legislation that prevents annuity providers from investing into whatever asset classes they chose?
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The problem is that they must PROVE to the regulators that there is no risk that they will not be able to pay the annuity. This used to be done by “with profit” funds issuing a few annuities, back by the large size of the fund. “With profit” funds have also been forced to derisk by the regulator.

But these days most annuity providers can only use gilts, as other investments are considered too riskily by the regulator. Yields on gilts are very low at present….

(“with-profits annuity” are another option but the concept of “with profit” funds was destroyed by the house of lords in the equitable life case. Saying that one group of fund holders had more rights than other fund holders, hence not allowing the transfer of risk, that enabled a steady return to be given from a fund that invests in volatile investments. It takes something like 30 years for investments to give there average long term return.)

http://www.aviva.co.uk/annuities/with-profits-pension-annuity/bonuses-and-returns.html is a good read.

see also http://www.williamburrows.com/%28A%2850kWAE-RzQEkAAAAOWM0YjFiZWYtN2VmMC00OTVhLTkzMzgtNmU4MTRiNjI5NTk2aWMgRrAsWfgi3wVibGGxJfm2ffg1%29%29/annuity/withprofits.aspx?AspxAutoDetectCookieSupport=1

Reply to the comment left by "Ian Ringrose" at "18/03/2015 - 16:23":

We may be at cross purposes. I was looking at a direct straight comparison for a lump sum of cash and what it can return when an annuity is bought over say 25 years V an investment in BTL property . Risks are subjective so your hands are tied by the risk profile of the individual annuity provider or/and regulator when investing in an annuity . I like to have more control over my destiny and the freedom to asses my own risks.
The Chancellor agrees.

Look what happened to endowment mortgages.
Thats when I realised that an IFA who sold me three really didn`t know that much and was just interested in his commission. I lost 1000`s through that bad advice. But the poor chap didn`t know. He was just following the perceived wisdom of the time. I was 23 so just went along with it.

A 55 year old has lived a bit so even though financial management may not be their strong suit I feel they are much better equipped for a variety of reasons to decide for themselves which route they want to take hence the need for a clear transparent comparison

Parents in my generation always told us it was a good thing to pay down a mortgage. I think completely differently. I had to listen to voices other than mainstream IFA`s to gain strength and realise that the world was not really geared up to thinking outside the corporate box.

The financial industry is far to cosy and inward looking I feel which they do to protect their own. Yes they have a duty perhaps to offer subjective risk free advice to the masses. Mavericks are not welcome. But this has led in turn on several occasions to mis selling scandals and bad advice to the masses . A collective guilty responsibility tag should be applied to the industry as a whole for some of their significant failings in the past and no doubt in the future.
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Reply to the comment left by "Jonathan Clarke" at "18/03/2015 - 14:16":

Mark's example appeared to be £3k for the portfolio, not for one property (he did not detail his calculations or assumptions, but £125 * 12 is not £3k).

My point was that Mark appeared to have underestimated anuity returns (at his 1% pa, the company could simply pay out the capital for 100 years!) and therefore the position is not as clear cut as he stated.

I am not in any way suggesting that anuities are better than property investment (nor the opposite).

Also, you cannot spend paper profits (which can disappear in a short time), so decision must also consider if it is income now that is important.

My point is that someone can just leave the money invested in the stock market and use income drawdown. The income from a good spread of “income shares” is about the same as on ungeared property (after taking all costs into account, including agents).

So the position is not cut unless the person is going to use gearing and has the experience (or lack) to find someone like Jonathan to advice them.

And if even 1% of retiring mid class people did this in MK, Jonathan would no longer be able to get the yields that he does.....