04 February 2019

Savings rates beginning to outdo property price growth

7 min read

 
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Becky O'Connor

Personal Finance Specialist

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  • Royal London notes “inflection point”, where best-buy savings rates now look more attractive than property price growth in some UK regions over the last 12 months
  • Urges savers and investors to remember the tax advantages of pensions and ISAs when planning where to store their savings for the long term

Piling money into houses is no longer an antidote to dismal returns on savings, as the best best-buy interest rates are now higher than the annual average property price growth in England, according to analysis by Royal London, the mutual insurer.

The average home in England grew in value by 2.6 per cent in the past 12 months to £247,430, according to figures released this month by the Land Registry[1]. By contrast, the best fixed-rate savings bond on the market, according to Moneyfacts, is a seven-year bond paying 2.75 per cent a year. [2]

The best easy access savings account, paying 1.42 per cent – is enough to beat house price rises in the slowest growth regions of London and the South East.

Becky O’Connor, personal finance specialist for Royal London, said:

“The attractiveness of savings accounts as a store of value compared with property is at an inflection point.

 “Savings rates have been offputtingly low over recent years, as a result of the rock bottom Bank of England base rate. However they have risen slightly as the base rate has increased. Coupled with a decline in the rate of house price growth, this trend has resulted in the most competitive savings accounts now paying more interest annually than property owners typically earned in the last 12 months.

 “While it is still difficult to beat inflation with most savings rates on offer, if you live in London or the South East, it is now easy enough to beat the current rate of house price inflation with a savings account.”

 “It’s important to remember that property or savings accounts are not the only things you can do with your money for long term financial returns. Saving into a pension comes with significant tax advantages and over the long term, the performance of stocks and shares investments tend to outperform cash.[3] Money that goes into a pension benefits from tax breaks whilst money withdrawn from an ISA is tax free.”

The returns from an individual property will depend on a number of factors, including where the property is located and whether it is a main home or a buy-to-let investment. The appeal of buy to let has taken a recent hit as a result of the Government cutting generous tax breaks for landlords.

 The rate and term of a savings account also makes a difference to the returns you will end up with – it’s only the very best rates on the market that outdo property price growth over the last 12 months.

Annual house price growth 12 months to November 2018

Region

 

England

2.6

Wales

5.5

Scotland

2.9

London

-0.7

South East

1.1

Yorkshire and Humber

2.0

East

2.6

North East

4.0

North West

3.1

East Midlands

4.4

West Midlands

4.6

South West

4.3

Source: Land Registry

Best-buy savings rates

Easy access

1.42%

One-year bond

2.15%

Two-year bond

2.35%

Three-year bond

2.45%

Five-year bond

2.7%

Seven-year bond

2.75%

Source: Moneyfacts

Consumer Price Inflation is now at 2 per cent – so anyone wanting the value of their savings to at least keep up with the rising cost of living needs to beat this interest rate. 

About Royal London:

Royal London is the largest mutual life, pensions and investment company in the UK, with funds under management of £117 billion, 8.8 million policies in force and 3,745 employees. Figures quoted are as at 30 June 2018.

For further information please contact:

Becky O’Connor, Personal Finance Specialist