South East property asking prices jumped by more than £6,400 to £363,992 in February according to Rightmove, an increase of 1.8% from January and 8.1% higher than a year ago. After the traditionally quiet months of January and February, the property market has started to warm up, but talking to some Ware & Hertford Estate Agents, they are reporting their lowest ever stocks of quality property for sale, is the issue a lack of supply?
Putting aside Hertford, Ware and Hoddesdon's continual housing supply shortage this is now, according to some commentators, being exaggerated by an increase in homes being owned by "Buy To Let" investors who tend to be purchasing a property as part of a long term pension plan and are more likely to keep it for longer than an owner/occupier would. I have also seen unwillingness among homeowners looking to move, to put their own property on the market as they can find few suitable properties to make it worth their while going through the whole moving process.
Talking to some Hertford & Ware landlords only last week, I said that I believe this is the new norm in the local property market, and is the consequence of over 35 years of not enough homes being built to meet the escalating growth in household numbers, resulting in a lack of quality homes for sale in many popular areas of East Hertfordshire.
In a recent article I mentioned that pension rules are changing this April and this certainly created a few emails, with many existing and new clients asking questions. Therefore, this week, I want to look a little deeper into the subject of your pension and the Hertford & Ware property market.
George Osbourne, in last years’ Budget, announced pension reforms that come into effect this April, which will give people with pension’s unprecedented access to their pension pot and the freedom to look for alternatives. In a nutshell, after the 6th of April, anyone aged over 55 will be allowed to withdraw all or part of their pension pot and spend it as they wish. Until now, you were only allowed to take out a quarter of it and were forced to buy an annuity policy with the rest.
George Osbourne, in last years’ Budget, announced pension reforms that come into effect this April, which will give people with pension’s unprecedented access to their pension pot and the freedom to look for alternatives. In a nutshell, after the 6th of April, anyone aged over 55 will be allowed to withdraw all or part of their pension pot and spend it as they wish. Until now, you were only allowed to take out a quarter of it and were forced to buy an annuity policy with the rest.
However there are always two sides to a story so let me tell you the downside first. There are some hefty tax implications by taking money from your pension pot. As before, as per the old rules, the first 25% can still be withdrawn from the pension pot tax free but, here is the sting in the tail, if you take more than a quarter of your pot (25%), anything above that initial 25% level will be taxed as income. So if you took the whole lot out, the first 25% will be tax free but the remaining 75% will be taxed at your income tax rate of 20%, 40% (or even 45% if you earn over £150,000 a year). .. and now the upside!
Under the old scheme, if you bought an annuity, when you died your annuity normally died as well. You would have no asset to pass on to your family. Also, the returns from pensions are poor at the moment. The best rates according to Hargreaves and Lansdown state if you were 55 years old, the best rate you would get on your annuity pension would be 4.4% fixed for life (so it would never go up) or 2.2% but the payment would go up with inflation. Compare this to the average "Yields" achieved in the Hertford, Ware or Hoddesdon property market of between 5% and 6% and you can see you will be a lot better off.
The other aspect of property investment is the fact that property values have risen consistently over the last 50 years and so even by taking taking a hit in income tax now, by buying a property, you buy a value increasing asset that you can pass on to your family.
So what is the best thing to do? It totally depends which strategy you are going to look at, one strategy is to look to achieve relatively small rental returns (i.e. low yields) in an up market area which has decent capital growth or, alternatively, another strategy is to buy properties in not so good areas known to produce a high returns (i.e. high yields) but low capital growth (i.e. how much the value of the property goes up). Now, I am not financial adviser, so cannot offer financial advice on what the best thing for you with your pension is. However, I can share my knowledge and experience of the Hertford, Ware region and surrounding property market, what to buy, what not to buy and where to buy. My thoughts on the local Property market can always be found on this blog but if you would like some specific advice please feel free to pop into our High Street office in Stanstead Abbotts or give us a call.
Your local property experts, our advice is free but our knowledge is priceless"
I have been in and around the Hertfordshire property market for over 25 years, starting as an estate agent in the county town of Hertford and now running a successful lettings and property management company based in Stanstead Abbotts. I have let and managed property all over Hertfordshire from the area that I currently work to Wheathampstead where I owned and managed a lettings & estate agents to Watford and surrounding areas where my company acted as a marketing agent for one of the largest property management companies in the country”
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