Keeping it in the family: property investment and planning for the future

The Bank of England’s chief economist, Andy Haldane sparked a debate among financial experts recently when he stated his preference for property investment over a pension. When asked about the best way to save for retirement he responded: “Well it ought to be a pension, but it’s almost certainly property.”

In the days following his comments, the debate raged over which was the better investment – with the general consensus showing, as it often does, that the issue isn’t black and white. The circumstances of the individual, particularly how many years they have until retirement and the number of properties in their portfolio, have a significant bearing on the likely return. And, of course, it doesn’t have to be a case of one or the other.

The debate that followed Mr Haldane’s comments did, however, reveal an appetite for property investment, both as a means of planning for retirement and being able to leave an inheritance for loved ones.

A report this month from the Resolution Foundation for the Intergenerational Commission revealed how the income of pensioners has overtaken working families for the first time. One of the things these prosperous pensioners have in common is home ownership, with this group owning a sizeable chunk of property wealth in the UK. Figures from the Office for National Statistics reveal how 1 in 10 people aged between 55 and 64 live in households with net property wealth of £500,000 or more – the highest of any age group.

For them – and indeed those a decade younger – property investment has, for many, been particularly fruitful. So, when you consider the current low interest environment for savings, it probably isn’t a surprise to see this generation factoring property investment into their retirement plans and as a means of passing on wealth to the next generation.

The concept of the ‘Bank of Mum and Dad’ – and indeed Gran and Grandad – is nothing new when it comes to helping young people with their housing needs, with around one in four mortgages secured on the back of a deposit provided by family members. But, it seems parents are now taking a more sophisticated approach and looking at how they can help their children as well as making a viable investment for their own future.

Research by the Post Office in October last year showed how there are now 730,000 parent-landlords in the UK, who are investing in a second property to rent out to their children at a below-market rate, with this figure expected to double according to the findings. The motivations behind this decision varied, but one in four saw the advantages of helping their children to save whilst also creating an asset for themselves to cash in on further down the line.

Navigating the myriad tax landscape of course presents further challenges when it comes to property investment, with stamp duty, capital gains tax and inheritance tax all requiring careful consideration. But, such concerns don’t appear to be insurmountable when the driving force behind the decision is to helping children or grandchildren have something that was perhaps much easier for you to obtain – their own home.

N.B. Independent advice should always be sought before embarking on a property investment.