For the last few years I've been living (renting) and working in Central London. I can't afford to buy a decent place round here because my salary isn't high enough, but this is where I want to live. I don't want to move out of town. My rent, I think, is around the same as a mortgage payment would be.
On the upside, I don't have to worry about property prices, building maintenance, or being tied down if my circumstances change. On the downside, I don't benefit from increases in house prices - and one day when I retire, I'm still going to have to pay rent while others have repaid their mortgages and don't have to pay anything.
So I decided that what I'd do is make massive payments into my pension plan, with a view to taking a lump sum on retirement and buying a house outright. I'm a higher rate taxpayer.
I doubt I'm the first person to have had this idea, so I'm interested in your views and experiences. Am I missing anything? Could this backfire on me?
2007-06-03 00:53:53 · 4 answers · asked by Snakey B 4 in Business & Finance ➔ Renting & Real Estate
It seems reasonable because as a higher rate tax payer you get tax relief on your pension payments whereas you would not get tax relief on mortgage payments.
Your tax lump sum is also tax free so you benefit again.
I work with colleagues who have done the same as you are doing and it seems quite sensible as long as the tax laws stay the way they are just now.
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2007-06-03 01:00:40 · answer #1 · answered by Anonymous · 1⤊ 0⤋
In the long term you're much more likely to get a favourable rate of return in the securities market than in real estate. Securities have historically provided an 8% - 10% annualized rate of return adjusted for inflation for over a century. Housing on the other hand has barely kept pace with inflation over the same period of time.
As long as your pension scheme provides for tax deferred accumulation of gain until you withdraw the funds, IMHO you will be far better off putting your money into a well diversified portfolio of investments than messing about with real estate. When you retire you'll be able to pretty much do as you please regardless of what the housing market might do.
If your pension scheme provides for tax-free distribution at retirement time, it's a no-brainer: Go with the pension scheme.
2007-06-03 01:21:03 · answer #2 · answered by Bostonian In MO 7 · 0⤊ 0⤋
I would be tempted to put my money into property just now if I were you. House prices are only going to rise and you would need a higher and higher sum in order to buy a decent property. Anyway, what if you don't live to pension age? I seriously think you should buy now.
2007-06-03 00:59:16 · answer #3 · answered by Ally 5 · 0⤊ 0⤋
i would not bother on both counts. pensions are going to be worthless unless your on a big wage packet, and the house market will hopefully crash giving us ordinary folk a chance to buy a house at a normal price
2007-06-03 01:03:39 · answer #4 · answered by didymos 2 · 0⤊ 3⤋