Friday, 9 December 2016

2322 Falmouth Savers batten down the hatches with low interest rates set to continue into the 2020’s

You might ask, what has the plight of the Falmouth savers to do with the Falmouth Property Market … everything in fact.  Read the newspapers, and every financial wizard is stating that with the decision of the Bank of England’s Monetary Policy Committee in early August to cut the Bank of England 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.

... This isn’t some made up story to capture the headlines of newspaper editors. The yield on 10-year Government bonds has been between 0.61 and 1.5 per cent during this year. This indicates that the money markets currently believe that the Bank of England’s base rate will, on average over the next ten years, be below 1.5% 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. As a saver, I did a search of the internet and the best savings rate I could find in recently 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 Falmouth house prices and buy to let yields have made property investment in Falmouth an appealing option for many. According to research, based on Zoopla house price figures...


Average Yield over the last five years for

Falmouth Buy to let property has been 4.6% a year


… and average Property Values in over the same period have risen by 18.34%!
Using these averages, the Falmouth landlord’s property would be worth £236,680 and they would have received a total of £46,000 in rent – making the total return £282,680. Meanwhile, whilst our 2,322 Falmouth Saver’s, 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. The graphical illustration below starkly illustrates the choice and potential difference between sticking your money in a savings pot or inventing in buy to let property.


There are risks as well as benefits to buy to let though. We 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 argument is that you cannot buy an unloved ‘stock market income based investment fund’ and set about renovating it and adding value yourself. The investment fund isn’t something that you can touch and feel; it isn’t something tangible…. it isn’t bricks and mortar. This is why, my fellow Falmouth homeowners and Falmouth landlords, is why the love affair of the British and Property will continue.
Scottish Widows Savings Survey 2014 – 12% of the population have £50k or more in Savings ie ideal BTL landlords. 55% of population have between £1 and £50k – but most of those 55% savings were under £1000… so the figure in the headline is 12% of your Adult population of your town/city. I specifically removed Children from the figures
Average Yield using the Lend Invest Index for your postcode area
Growth % in 5 years using the Zoopla AVM model
200,000 would only be £221,184 – figures using average Building Society rates since 2011



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