Millions pin hopes on property

MILLIONS of Britons are investing for the future in property rather than pensions, a report reveals today. Despite warnings by experts that the housing market may not be the safest bet in the long-term, it is currently seen as the best way of saving for old age.

A survey reveals that 40% of adults see sinking cash into bricks and mortar as the best route to raising money for a comfortable retirement, compared with 27% who favour a company pension.

Just 15% believe a private or Government-approved stakeholder pension is the most attractive deal, according to market analysts Mintel.

Britons feel 'cheated' by the insurance and investment industry following scandals surrounding the sale of endowment mortgages and private pensions.

Insurance firms earned a huge amount in commission from selling these products, only to blame poor stock market performance now that they are failing to deliver promised returns.

As a result, says the report, many people, particularly those aged 25 to 34, are piling spare cash into the housing market. They might buy a second property to rent, or borrow 'big' to buy a home they believe will provide a substantial cash lump sum when they trade down in old age.

However, Mintel said that while property appeared a sound investment, it carried risks. Its senior finance analyst, Paul Davies, warned: 'Prices can crash, and it would be a high risk to sink everything into property. Some leading economists predict prices will fall by 15 to 20% over the next couple of years.

'If fortunes change and interest rates continue to rise, many may find they have unmanageable mortgage repayments. And there are no guarantees of selling a property, which means it may not be such a rewarding way to save for retirement after all.' Mr Davies said that 'general disillusion' with pensions meant people were failing 'on a huge scale' to plough enough money into them.

Mintel found that while 20m working adults have their own pension arrangements, another 17million have no safety-net in place. The organisation calculated that a man of 35 looking to retire at 65 with a final 'pot' of £100,000 - which would give an annual income of only around £6,600 with current annuity rates - would have to save at least £260 a month.

In reality, some 40% of those with pensions were saving less than £100 a month.

Women were particularly at risk of poverty in old age, the survey found, with just one in ten saving more than £200 a month, and one in four less than £50.

Mr Davies said: 'At a time when people have high disposable income and low mortgage repayments, they should be able to save more for retirement.'

House prices rose 0.4% during the past four weeks, figures from property website Hometrack showed on Sunday. It is the third consecutive month prices have gone up by this amount, after falling slightly earlier in the year.

The cost of a home is now around 1.1% higher than at the beginning of 2003, at an average of £146,500.

Cumbria saw the highest rises at 1.5%, followed by North London at 1.1% and Hereford and Worcester and mid-Wales at 0.9%.

John Wriglesworth, of Hometrack, said: 'The housing market is proving to be robust, despite recent rises in interest rates.'