Property Gains And Savings Rates Reach A Tipping Point

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Savers have reached a tipping point where interest rates on cash in the bank is starting to outweigh the returns from property.

For more than a decade, property yields have outpaced savings rates, but the tide is beginning to run.

The average value of a home in England rose by 2.6% in the year to the end of November 2018 to £230,630 – up 2.8% year-on-year, the latest available figures according to the Land Registry.

The best savings fixed rate on the market is a seven-year bond paying 2.75% a year, while the best any time easy access account pays 1.42%, which is more than house price gains during the past year in London and the South-East.

Store of value

Becky O’Connor, personal finance specialist for financial firm Royal London, which compiled the savings data, said: “The attractiveness of savings accounts as a store of value compared with property is at an inflection point.

“Savings rates have been offputtingly low over recent years, as a result of the rock bottom Bank of England base rate. However they have risen slightly as the base rate has increased. Coupled with a decline in the rate of house price growth, this trend has resulted in the most competitive savings accounts now paying more interest annually than property owners typically earned in the last 12 months.

“While it is still difficult to beat inflation with most savings rates on offer, if you live in London or the South East, it is now easy enough to beat the current rate of house price inflation with a savings account.”

Property yields

“It’s important to remember that property or savings accounts are not the only things you can do with your money for long term financial returns. Saving into a pension comes with significant tax advantages and over the long term, the performance of stocks and shares investments tend to outperform cash. Money that goes into a pension benefits from tax breaks whilst money withdrawn from an ISA is tax free.”

O’Connor also explained that property yields depend on if the home is a buy to let and location. Yields are also quoted before deducting tax and letting expenses.

Savings rates can depend on the amount invested and how long someone is willing to tie their money into a fixed rate.

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