Pension or Property Investment? Saving for Retirement as a UK Expat – Part One

Some Background.

According to Hargreaves Lansdown, during the pandemic, a quarter of people have either stopped or reduced the amount that they contribute to their pensions. It’s understandable that, given the economic uncertainty that Covid-19 has brought to many lives, people would cut back on payments they believe they can do without. In many people’s eyes, pension contributions fell into that category.

For many, it’s hard to recognise how contributing to a pension can benefit them as they feel they have no real control over where and how their savings are going to be used to provide for their later lives. In fact, according to Unbiased, a fifth of UK over-55s have no pension at all. Retirement saving is even more of a problem for UK expats who are typically younger and less focused on their retirement.

For those without a pension, or those who are unsure about whether a pension is a worthwhile place to put their money, it’s still important to find a way to save for your retirement. Often, one of the first options that UK expats consider as a pension alternative (or as part of a diverse portfolio) is to invest in buy-to-let property. This can come in the form of a single property or, for more seasoned investors, as a fully-fledged property portfolio.

The UK Property Price Boom.

‘The price of houses in the UK just keeps rising. Anecdotally, it’s incredible to see how much prices have risen – even since I bought my first home’ says Stuart Marshall. ‘According to Halifax, the average cost of a home in the UK has more than trebled since the start of the century. Despite huge global events which have caused the prices of property to fall at times, it’s clear that on the whole property prices in the UK have risen substantially over time. This is what leads many UK expats to believe that investing in a rental property is a viable alternative to a pension.’

Pension or Property Investment: How Much Do You Need?

‘The first thing you need to consider is your savings goal’ says Stuart Marshall, CEO of Liquid Expat Mortgages. ‘Knowing your goal in advance is important before starting any financial venture. If you decide on a pension, you need to know how much you will ultimately need for a comfortable retirement in order to make the requisite contributions. According to Royal London, a comfortable retirement will necessitate a pension pot of £260,000. With this figure in mind, you will be able to work out roughly how much you will need to save to reach this sum by pension age. Similarly, you can work out how much investing in property might contribute towards this goal.’

‘If we use Royal London’s figure of £260,000, it’s easy to see how a property portfolio might contribute to a comfortable retirement.’

Suppose, for example, that you purchased a property in the North West – one of the hotspots for UK expats looking to invest in property. The average price of a property in this area is £189,000, meaning that a 25% deposit would require an investment of £47,250. With a typical mortgage term of 25 years, this property will be paid for in full. So, to pay this property off by the time you reach a pensionable age of 67, you would have to start investing before you turn 42. Evident here is one advantage of property investment compared to a pension – you can start much later and still have a fruitful outcome. So, property investment will typically be better for older UK expat savers looking to start putting away funds for retirement. Of course, you can also overpay on many mortgages and pay off your property early if you so desire. This can increase the profitability as 100% of the rental profits will go to you, rather than contributing to mortgage payments. It will also reduce the amount you pay in interest over the term of your mortgage.

‘The focus is so often on rental yields. However, if you see the rental yield as simply paying the mortgage, it’s much easier to view property investment as a savings vehicle rather than a business venture. Of course, it can be both. But, for the purposes of retirement saving, it’s easier to see investing as a long-term savings vehicle whereby your tenant pays off the capital. There is currently the added benefit that many lenders are offering some amazing UK expat and foreign national mortgage products, which makes a buy-to-let property look even more attractive.’

But how can the above calculation help to reach the £260,000 that Royal London recommends for comfortable retirement? ‘The clue is in the price growth of property over time and the fact that, over the course of the mortgage term, the tenant will have contributed substantially to paying off the capital and interest!’ says Stuart Marshall. ‘According to housing portal Zoopla, house prices in the North West have risen by 7.3% in the last 12 months. Meanwhile, the Office for National Statistics has the price rise in the North West at over 15%. With these capital growth figures in mind, it’s easy to see how the average property in an area like the North West could appreciate to a figure comfortable for retirement. Savills predicts that the value of property in the North West will grow by 28.8% by 2025. If we apply this calculation to our average property of £189,000 mentioned above, this brings the total value of the property to £243,432 – a figure in the region of the Royal London target.’

‘To make sure your investment is profitable, it’s important to consider consumer demand. The demand from consumers will inform both the location and the type of property you end up choosing for your investment. Choosing a property which is in high demand will minimise the risk of breaks to rental income and make sure void periods are kept to a minimum. It can help to imagine your ideal tenant for this purpose. For example, if your ideal tenant is a family, a studio apartment will be a poor choice of property for the specific goals of your investment, whereas a three-bedroom house in the suburbs might be preferable for these purposes.’

If you want to find out more about saving for retirement as a UK expat, contact us using the details below:

Liquid Expat Mortgages
Unit F2, Waterfold Business Park,
Bury BL9 7BR
Phone: +44 (0) 161 871 1216
www.liquidexpatmortgages.com

Any media enquiries please contact Ulysses Communications:
sergio@ulyssesmarketing.com
+44 (0) 161 633 5009