What has the plight of the Rotherham savers to do with the Rotherham property market…? The answer is “everything”.
Read the newspapers and you will see that every financial wizard is stating that the decision taken by the Bank of England’s Monetary Policy Committee in early August to cut the base interest rate to an all time low of 0.25% will mean most likely mean that they will stay low well into the early 2020s.
Savers must prepare themselves.
This isn’t some made up story to capture the headlines of newspaper editors. The yield (posh word for interest rate or return) on 10-year Government 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 ten 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 their savings, tying their money into property could prove advantageous.
You see as a saver, I did a search of the internet and the best savings rate I could find was a 5 year fixed rate at 2.5% a year with Weatherbys Bank. Your £200,000 nest egg would earn you £5,000 a year – not much.
However, on the other side of the fence, growth in Rotherham house prices and princely buy to let yields have made property investment in Rotherham an appealing option for many.
According to my research…
The average yield over the last five years for Rotherham buy-to-let property has been 5.2% a year and average property values over the same period have risen by 16.3%.
Using these averages, the Rotherham landlord’s property would be worth £232,600 and they would have received a total of £52,000 in rent – making the total return £284,600.
Meanwhile, whilst the 10,438 savers in Rotherham, (using the average savings rates for the last 5 years, even if they had reinvested the interest) their £200,000 would only grow to £221,184.
There are risks as well as benefits to buy-to-let 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 & Shares ISA.
One last thought though…
You cannot buy an unloved ‘stock market income based investment fund’ and set about renovating it and adding value yourself. It isn’t bricks and mortar and that is why my fellow Rotherham homeowners and Rotherham landlords is why the British love affair with property will continue.