The UK’s love affair with property as an investment option shows no sign of wavering despite recent changes in tax rules affecting landlords who could face losing thousands of pounds in profit.
According to a recent survey carried out by Perrys Chartered Accountants, 35% of the UK are most confident in property compared to any other investment, including pensions and ISAs.
The survey of 1,000 people, which was conducted by Perrys Chartered Accountants to raise awareness of the importance of planning for the future, also revealed that 8% are relying on the equity from their property as their main source of income for retirement.
Research carried out by Halifax last year revealed that the UK’s housing wealth had passed the £6tn mark for the first time, with the majority of the property wealth in London and the South East. It is estimated that the average net equity worth – the difference between the value of a home and the outstanding mortage – is £247,233.
With around £25,000 per annum needed at retirement to maintain a similar lifestyle this means equity from a single property could provide up to 10 years of income. However, this does not factor in other costs for releasing the equity, such as estate agency and legal fees or any stamp duty charges, which could stretch into the thousands. And with an average life expectancy of 81 in the UK, relying on property equity from a first home could mean there is a possible income shortfall of at least 6 years.
Stewart Pope, CEO at Perrys Chartered Accountants, is urging people to plan ahead and think about the possibility of changing circumstances. He explains that the increasing costs of residential care (over £29,000 per year on average) should also be taken into account and not just hopes to keep an existing lifestyle.
He says: “Whilst maintaining your current lifestyle will always be the first consideration, it is also important to be aware of the other possibilities that life can throw at you, such as ageing relatives, long-term illness, or the chance you might need residential care in the future.”
The recent introduction of auto-enrolment for employee pensions is hoping to address some of the issues we face as an ageing nation. However, only a quarter of those aged between 35 and 54 felt confident in pensions as a future investment with 40% saying that putting their money into property would be their first choice. But the Government’s latest changes to tax regulations and the significant increase in the stamp duty charges paid on second homes are making property investment a more difficult and expensive prospect for many.
Stewart concluded: “It is worth taking a look at your existing assets to see how you could maximise potential for the future. With the right advice and some effective tax planning you could find that this makes a long term difference to the shape of your financial future.”