Read the newspapers and every financial commentator is stating that with the decision of The Bank of England’s Monetary Policy Committee in early August to cut the base rate to an all time low of 0.25 per cent, savers should prepare themselves for interest rates to stay low well into the early 2020’s.
... And this isn’t some made up story to
capture the headlines. The ‘yield’ (a posh word for interest rates and return)
on Government 10-year bonds is currently 0.61%. This indicates that the money markets believe
that The Bank of England’s base rate will, on average over the next 10 years,
be below the 0.61% rate they are buying the 10-year bonds at (because they
would lose money if the average was over 0.61%). UK interest rates are going
to be low for a long time.
For those who have saved throughout
their working lives and are looking for ways to maximise on their savings, tying
money into property could prove advantageous. I did a search of the internet and the best savings
rate I could find was a 5-year fixed rate at 2.5% pa with ‘Weatherbys Bank’. A considerable £200,000 ‘nest egg’ or
inheritance windfall would earn you £5,000 pa – not much. Conversely, growth in Oakham house prices and
princely buy-to-let yields have made property investment in Oakham an appealing
option for many. According to my
research, the...
Average yield over the last 5 years for Oakham
buy-to-let property has been 5% pa, and average property values over the same
period have risen by a very respectable 21.1%
Using these averages, the Oakham
landlord’s property would be worth £242,200 and they would have received a
total of £50,000 in rent – generating a total return of £292,200. Meanwhile, looking at our ‘savers’ (using the average savings
rates for the last 5 years - even if they had reinvested the interest), their
£200,000 would only be £221,184.
There are of course risks as well as
benefits with buy-to-lets though. As my
blog readers know, I tell it like it is, and investing in buy-to-let means
locking up capital in a property that may
fall in value. Another option would be stock market income based
investment funds, which are paying around 5%, especially if put your nest egg
into a tax free stocks and shares ISA.
The
other side of the coin is that you cannot buy an unloved ‘stock market income
based investment fund’ and set about renovating it and adding value yourself!
Selling, buying, renting and managing your homes and property investments shouldn't be stressful, and we treat your property as if it were our own. Please get in touch with us - we offer independent, trustworthy advice on the Rutland and Stamford property market.
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