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4 ways to increase your savings in 2019

Everyone wants to increase their savings. Yet with most UK savings accounts offering abysmal interest rates at present, this is easier said than done. That said, there definitely are ways to boost your total if you’re willing to use your initiative or to take on a little risk. Today I’m going to show you some ways in which you could earn a higher interest rate than the 1.5% being offered on savings accounts in 2019.

Bank accounts
One approach is to take advantage of bank accounts that offer higher interest rates on smaller sums of money.

For example, Tesco Bank’s current account currently pays 3% on savings up to £3,000, as long as you pay in £750 per month and make three direct debits. Each individual can have two of these accounts, meaning that a couple could potentially earn 3% on £12,000 (4 x £3,000), which equates to £360 interest per year.

Other accounts that could be worth a look include the TSB Classic account, which pays 5% on up to £1,500, and the Nationwide FlexDirect which pays 5% fixed for a year on up to £2,500, although both have conditions.

Fixed-term savings
If you don’t need access to your money in the short term, another easy way to pick up a higher interest rate is to invest your cash in a ‘fixed-rate’ savings account for a certain period of time. For example, the Post Office is currently offering a rate of 1.9% on its one-year fixed-term savings account.

While the rates on two-year and five-year products are higher than one-year options, I wouldn’t recommend locking money away for longer than a year, as UK interest rates could rise in the future, meaning that interest rates on savings accounts could improve too.

Peer-to-peer lending
If you’re keen to earn a higher rate than 3% on your money, consider peer-to-peer (P2P) lending. This is where you lend your money to other people, or businesses, through a P2P platform. Through popular UK platforms such as Zopa, Funding Circle, and Ratesetter it’s not hard to earn rates of 4% or higher. Having said that, it’s important to note that P2P lending is riskier than putting your money in a bank account. Borrowers can struggle with repayments meaning you might not get back all of your money. Furthermore, given that P2P lending is a relatively new industry, we don’t know how it will perform if the economy collapses. So it’s worth proceeding with caution here – it’s probably not wise to put your entire life savings into P2P lending.

Dividend stocks
Finally, if you’re serious about increasing your savings, consider investing some money in dividend stocks. These are companies that pay shareholders regular cash payments out of their profits several times a year. Right now, there are some fantastic yields on offer from some of the UK’s largest companies, such as 6% from Shell, 6% from HSBC and 8% from British American Tobacco. With these kinds of stocks, it not hard to start building up a passive income stream.

Of course, stocks are riskier than cash and in the short term, share prices can be volatile, meaning you might not get back what you invested. However, research has shown that over the long term, stocks tend to generate returns of around 7%-10% per year on average, which is far higher than the returns from cash savings in the current low-interest-rate environment.

Source: Yahoo Finance UK

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London Brexit fears see Asian property investors choose Dublin

Brexit has turned Asian property investors off London. Now, they’re reappearing in Dublin.

For the first time ever, Asian investors accounted for three of the top five investments in office buildings in the Irish capital in 2018, according to estate agents Knight Frank.

This included the biggest deal, the €176m (£158m) sale of one of the city’s largest office developments to Hong Kong-based CK Properties Ltd.

Across the board, analysts have been suggesting that London would see a Brexit-related dent to its property market. Earlier this year, a report from Savills indicated that Asian-based investors’ interest in the capital had tailed off, falling behind the level of demand among UK-based buyers.

It is of course no secret that many of the UK’s large financial services firms have decided to move some of their operations from London to elsewhere in Europe because of concerns over Brexit.

Dublin has been a big winner in this respect, and now it seems to be benefitting from top-line investment, too.

According to Knight Frank, when all of the year’s transactions are completed, the overall value of commercial property deals will have jumped from €2.5bn (£2.25bn) in 2017 to €3.5bn (£3.15) in 2018.

The office market accounted for the biggest share of transactions, something the firm said was due to strong occupier demand and competitive pricing compared to other European capitals.

Around 25% of Brexit-related relocation announcements between June 2016 and September 2018 involved moves to Dublin, according to Knight Frank — putting the city ahead of Luxembourg, Paris and Frankfurt.

Bank of America and Barclays, which has rented prime city-centre real estate a stone’s throw from Ireland’s parliament, are two high-profile banks that chose Dublin for their post-Brexit European Union hubs.

But Dublin’s real estate market has also long benefitted from its thriving technology district, known as Silicon Docks.

In May, Google announced it would spend €300m on the purchase and redevelopment of a series of warehouses in the district, dramatically expanding its existing European headquarters.

And Facebook, which also has its European headquarters in Dublin, announced it was set to quadruple its office space in the city, with room for 5,000 extra staff, by signing a long-term lease for a new 14-acre campus.

Knight Frank’s report also points to a big increase in Dublin’s private rental market, with several global institutional investors spending upwards of €1bn (£899m) in the sector.

Favourable long-term demographics, rising rents, and new investment-grade properties coming on stream are three of the main factors that encouraged the growth, the report says.

Source: Yahoo Finance UK

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Where are the best investment opportunities for 2019?

With 2019 fast approaching, we asked some of the UK’s leading fund managers to highlight the stocks they are watching closely and to share their outlooks for the new year.

As 2018 draws to a close, there is much to feel nervous about.

The UK is set to leave the European Union in March 2019 and a deal is yet to be agreed; investors have experienced a profound sell-off over the past few months; trade tensions have escalated between the US and China; and the global economy appears to be cooling.

“Global growth is getting harder, with the trade war having a particular impact on China. The US too is finding growth more difficult, as the Trump stimulus package wanes,” explained Jeremy Lang, manager of the Ardevora UK Equity fund.

“There was nowhere to hide for investors in the recent market sell-off, as traditional areas of shelter did not provide any safety,” he added.

Lang suspects that 2019 will be much like 2018, with the market experiencing “many wild mood swings”.

UK outlook

When it comes to the UK market, he notes there appears to be “more palpable gloom and little optimism”.

“This undoubtedly drives strong investor desire for overseas earners.

We are now enticed by areas of the market most other investors hate, as there are increasing odds of a surprisingly benign outcome.

“While still small, the odds of another referendum and a remain verdict are far better than they were weeks ago. Even if we were to see a second referendum, there are going to be a number of hurdles and pockets of anxiety along the way,” he explained.

With this in mind, Lang and co-manager William Pattisson have reduced their fund’s exposure to commodity stocks which earn a large proportion of their earnings overseas.

“We used the proceeds to buy into more domestically-focused value opportunities, such as Travis Perkins,” he added.

Ken Wotton, manager of the LF Gresham House Multi Cap Income fund, notes that Brexit is likely to cause further volatility in the UK market. Nevertheless, investors must remember that this will create selective opportunities.

“While large-cap businesses are generally impacted by macro factors, the agility and niche positioning of smaller companies may allow them to react positively to broader economic headwinds,” he said.

He believes Inspired Energy, which provides energy advisory services, is poised for strong performance in 2019.

“While it advises mid-sized corporations, Inspired Energy is paid in commission from contracts with large energy suppliers, with payments based on the energy usage companies incur. This guarantees multi-year revenue and high earnings visibility for the business,” Wotton said.

Phil Harris, manager of the EdenTree UK Equity Growth fund, notes that the unforeseen variables and endgame scenarios surrounding Brexit may feel like attempting to play “three-dimensional chess”.

In spite of the political headwinds, he is encouraged that the UK economy has so far proven robust.

“With sentiment at multi-year lows and UK valuations reflecting this, we expect to find multiple opportunities across the UK small and mid-cap space for us to deploy our current high levels of cash,” Harris explained.

Better opportunities elsewhere

David Coombs, who manages the Rathbone Multi-Asset Portfolio range, and assistant manager Will McIntosh-Whyte note that Brexit has so far divided the nation and slashed the amount that businesses have invested here.

“Yet the UK has muddled through so far. Wages are rising, albeit slowly, retail sales were okay despite some high-profile high street failures and business surveys remain in expansionary territory. We don’t think the UK is doomed, but we see better investments elsewhere,” the managers explained.

Looking ahead, as central banks around the world tighten monetary policy, the managers suspect that share prices will come under pressure.

“That’s just the way valuations work: as the rate you get for taking zero risk goes up, the value for risky cash flows goes down. While this will likely cause another bumpy year for stock markets, it does come with benefits.

“Government bond yields are returning to levels where they should offer better protection for portfolios. And for rates to rise, that’s usually because countries are growing and deflation is out of the picture,” they added.

Against this backdrop, Coombs and McIntosh-Whyte expect well-run businesses with low debt levels to prosper.

Source: Your Money

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UK stocks could surge when Brexit is settled

The bounce seen in global equity markets since the end of last week as a result of an improving political environment could be replicated in the UK if the Brexit process comes to a stable conclusion.

This is according to Russ Mould, UK investment director at AJ Bell.

His comments came as Asian and emerging market equities opened strongly this morning (December 3) following progress in the trade dispute between the US and China, with our sister title the Financial Times reporting that US president Donald Trump is to offer a “truce” in the dispute.

Mr Mould said the swiftness of the response by investors to the change in the political rhetoric indicated that if a similar change in the political weather were to happen in the UK, then the UK equity market would also increase sharply.

He said the UK market has underperformed all other developed equity markets in 2018, an outcome that has left it on a valuation multiple of just over 11 times earnings, which is considerably less than the long-term average for the market of 18.

The yield on the UK market of 4.8 per cent is also greater than that offered by other markets, and Mr Mould said this makes those markets “cheap.”

Aninda Mitra, senior analyst at BNY Mellon, said the market is “elated” by the developments in the trade dispute but he added that the reprieve could prove temporary.

Markets have also been boosted by comments from Jerome Powell, chairman of the US Federal Reserve, who stated last week that US interest rates may be approaching the peak level for now, and so not need to rise by as much as the market had previously expected.

Ed Smith, head of asset allocation research at Rathbones, said the move by Mr Powell has boosted markets, but that a change in relations between the US and China would provide an even bigger boost.

Jonathan Davis, Chartered financial planner of Jonathan Davis Wealth Management in Hertford, said there have always been issues in markets but investors should remember that this has not stopped equities rising consistently over the past century.

Source: FT Adviser

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Property investment: the four property types you should avoid

When it comes to property investment, I always emphasise the need to have personal goals.

What you want to achieve from your property journey will be different to another investor and, as such, the type of investments you put your money into will differ too.

That being said, there are some investments that I wouldn’t recommend to anyone.

Student pods

You buy a room within a purpose-built student block and rent it out to students. Many will come with a guaranteed rental return for a period of one or two years. What’s not to love?

Well, lots actually. Firstly these pods are almost always overpriced, that guaranteed return you’re getting will have been factored into the asking price.

Secondly, the resale market is virtually non-existent. You can only sell to other investors. And your tenant market is also severely limited.

Finally, there is very little possibility of capital growth. Prices will only rise if yields do.

Student apartments can be a terrible investment (image: PA)

Hotel rooms

Hotel room investments are similar to student pods.

You buy a hotel room, a management company rents it for you, and you get a return. It’s a hands-off investment – which can be many attractive to investors.

What’s not so attractive, of course, is the fact these too have a capital growth issue and a distinct lack of a resale market. What’s more, you’ll be hard pushed to find a lender willing to lend to you on such an investment.

Think twice before investing in hotel rooms (image: Shutterstock)

Overseas ‘hotspots’

I’m certainly not suggesting overseas investments are a bad idea in general. However, you should be wary of areas marketed in a particular way.

We’ve seen what happens when marketers get overexcited. A few years ago Bulgaria and Spain were the locations what we’re heading for a boom; prices were going to soar, so investors and developers had to get in quickly. And now? Prices have plummeted in both countries, and thousands of homes stand empty.

Be cautious around claims of price rises. Do your own research, don’t focus too much on price, look at yields and, as ever, consider the fundamentals of the area.

Overseas properties can be prone to hype (image: Shutterstock)

Bargain properties

It is certainly possible to get a property bargain.

If you’re able to have other points of negotiation, you could get a great deal on a property. But if a property price seems too good to be true, assume that it’s not and do your research.

There’s very little point in buying a family house to rent out – even if you get it for rock bottom price – if nobody wants to rent it!

Check the rental market, the local amenities, the employment opportunities before getting carried away by a bargain.

By Rob Bence

Source: Love Money

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What do tenants want from your UK property investment?

From bedroom numbers to proximity to local work and education hubs, a new survey reveals the amenities young British tenants prioritise, giving investors an insight into what makes the strongest investment property.

Summary:

  • Young UK tenants reveal the things they want when looking for a rental home
  • 40% of 18 to 24-year-old renters in the UK state bedroom numbers as being very important
  • A quarter also believe that it’s very important to live close to work or university, highlighting the need for investors to focus on prime city centre locations

Are you targeting the type of property that will attract and retain UK tenants?

New research, published by online comparison site GoCompare, reveals the things that makes a rental property attractive to young British tenants.

When asked what they look for when finding a new rental home, 40% of 18 to 24-year-old renters believe that the number of bedrooms a property has is very important, suggesting young tenants are prioritising one and two-bedroom homes and apartments over studios.

Location is also another key priority. 48% of young renters state that living close to work or university is somewhat important, while 25% believe that this is a very important factor.

30% of 18 to 24-year-olds also want to move into an apartment that’s unfurnished.

The survey also revealed that 40% of tenants did not state whether they wanted to own a home in the future or not, underlining the changing attitudes towards ownership in the UK. Separate research published earlier in 2018 suggests that up to one-third of millennials (those born between 1980 and 1996) will now rent their entire lives.

All of these things that tenants now demand is driving the growth of the purpose-built rental sector. Buy-to-let, formerly the UK’s preferred rental sector, can no longer deliver the type of high-quality property in central locations that young renters now want.

Instead, investor interest is now shifting towards prioritising modern, city centre accommodation that young tenants will pay a premium to access.

Source: Select Property

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Forget buy-to-let! These residential REITs target returns of 8% plus

Buy-to-let property has been an incredibly popular investment over the past few decades, and the UK is now estimated to have more than 2m landlords. However, the rapid pace of growth in buy-to-let investments appears to be slowing down due to recent tax and regulatory changes, which make residential lettings less attractive compared to other investments.

Prospective new investors should also bear in mind that buy-to-let investments can be incredibly time consuming and stressful. Personally, I think I spend enough time making sure my gas and electrical appliances work without worrying about someone else’s. There are also great risks involved, as lengthy void periods or tenants not paying rent could cause you to lose your property if you can’t cover the cost of your mortgage payments.

Residential REITs

However, there is another way to invest in residential property. Over the past two years, there have been a number of new UK residential real estate investment trusts (REITs) listing on the London Stock Exchange. These investment vehicles offer a quick and easy route to investing in residential property and enable shareholders to spread the risk across multiple investment properties.

The Residential Secure income REIT (LSE: RESI), which invests in a mix of shared ownership, market rental, functional and sub-market housing, gives shareholders exposure to UK house price movements combined with steady income streams derived from strong covenants and long leases.

The REIT, which debuted with its IPO in July 2017, seeks to deliver an inflation-linked target annual dividend of 5% and total returns in excess of 8% per annum, assuming RPI inflation of 2.5%. ReSI’s objective is to deliver long-term stable inflation-linked returns to its shareholders by acquiring high quality residential assets which comprise the stock of UK social housing providers.

With the £180m that the company has raised in its IPO, it has so far invested in 1,772 retirement residential units located across England, Scotland and Wales. These investments represent roughly £155m of the proceeds raised, which implies further acquisitions will be made as the company targets a 50% debt-to-asset ratio.

Build-to-rent

Elswhere, investors should also take a look at the PRS REIT (LSE: PRSR), which is particularly noteworthy because of its strategy of investing in newly constructed build-to-rent homes. Investing in newly-built private rented housing allows PRS to acquire new properties at a slight discount to the potential sale price on completion via forward funding of new developments.

As such, PRS is expected to earn a higher net initial yield when compared to purchasing existing housing stock. On the downside, however, operational risks may sometimes be greater due to potential construction problems and dilapidations, which could affect both rents and resale values.

PRS has completed just over 400 homes since June 2017 and has committed a further £437m for new developments, with around 1,300 new homes under construction. Under its current strategy, it will utilise roughly one-third of its equity to purchase completed assets, with the remainder used for forward fund developments within the REIT itself.

The company is targeting a 6% annual dividend yield and net total shareholder returns of at least 10% per annum, based on its IPO price of 100p.

Source: Yahoo Finance UK

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Midlands Seeing Investment Property Market Growth

The East and West Midlands are seeing growth in buy to let investment property purchases.

New research from Paragon, which surveyed a total of 680 landlords, found that buy to let mortgages for property purchases have fallen by approximately 40 per cent overall since 2015.

However, landlords in the Midlands are challenging this trend. Strong economic growth in the region fueled by Birmingham’s successful regeneration and a plethora of universities have made the region particularly desirable for investment.

Further stimulation came from several financial service firms relocating their head office and operational functions outside of London to Birmingham. HSBC and Deutsche Bank recently made the move, while further activity is expected in the city ahead of the 2022 Commonwealth Games.

Tenant demand was also seen to be increasing in the region. 42 per cent of landlords in the East Midlands had seen a surge in demand, while 33 per cent of landlords in the West Midlands noted the same trend. These figures are particularly high when considered in comparison to the 24 per cent of all landlords who noted rising demand.

Rental in the region were also strong. Landlords in the East Midlands reported average yields of 6.7 per cent while those in the West Midlands saw yields of 6.2 per cent. In comparison, the research also discovered that landlords operating in Central London were least likely to be buying property. In fact, a net 16 per cent of those in the capital said that they had sold some property in the first quarter.

Managing director of mortgages at Paragon, John Heron, said: ‘These findings highlight a big regional difference in landlord experience and buying habits. Some Central London landlords appear to be scaling back a little while landlords in the Midlands continue to invest on the back of a positive outlook.’

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Issues to consider when investing in property

There are many issues to consider when investing in property, some of which are fairly obvious while others might make you think. We will now take a look at some of the more important issues to take into consideration.

LOCATION, LOCATION, LOCATION

It goes without saying; the location of any property investment is key to the long-term success and maximising return on investment. There are some relatively simple factors to consider which include:

• Local economy
• Demand for property in the area
• Growth drivers including future developments
• Property price ceilings
• Rental value ceilings

In many ways, the process of investing in property should in the early days be a relatively simple tick box exercise. If the relevant number of boxes are ticked then it is time to do more research.

FUNDING – INVESTING IN PROPERTY

There are very few property investment opportunities today which do not require some form of deposit. It is essential that the deposit does not stretch your finances to a level where you may well struggle in the event of unforeseen financial events.

• Leave yourself some financial headroom
• Ensure monthly payments are affordable
• Remember to switch to lower rates where applicable
• A buy to let property should be self-funding
• Never assume 100% occupancy with buy to let

There are different funding vehicles available for different types of investments so it is worth taking on board the advice of a mortgage specialist. It may also be worthwhile looking at crowdfunding which is gathering momentum.

CASH FLOW

Is all good and well having the best investments, paper profits but if you do not have sufficient cash flow to cover your short to medium term financial requirements, this can cause major problems.

• Avoid overextending your finances
• Resist the temptation to grow your property portfolio too quickly
• Make full use of equity built up in your property investments
• Ensure your income is always significantly greater than your outgoings

They say that “cash flow is king” and it is only when you are struggling with cash flow that you will realise exactly what this means. Profits on paper are great but if you do not have the cash flow to support them it can cause major problems with fire sales, etc.

EXIT STRATEGIES

It is bizarre when you realise that the vast majority of people investing in property give no thought to how they will exit and bank their profits. You should always have an exit strategy in mind in the event of unforeseen circumstances or long term changes to your life.

• Tax efficient investment is important
• Whether an outright sale, remortgage or some other option, always have an exit strategy in mind
• Set yourself a long-term target and exit route
• A portfolio of properties with strong cash flow can be easier to sell than individual properties

It is all good and well having significant paper profits but at some point you will need to realise these returns. There will be situations where it is more attractive for investors to buy a group of properties with strong cash flow than cherry pick individual assets. You should also consider how your family might manage your investments when you are no longer capable.

Source: Property Forum

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Investing in properties for retirement is no longer sustainable

Nearly one million private landlords face a pension black hole after new laws and regulations mean the income from their properties won’t sustain them in retirement, MakeUrMove has found.

Some 43% of private landlords invested in a property to provide for themselves in their retirement, with many actively encouraged to do so as a safe, secure retirement option.

However three quarters of those landlords said they will consider selling their properties if they start to make too small a margin, or fall into the red due to additional costs.

Alexandra Morris, managing director of MakeUrMove, said: “Smaller, casual landlords have been impacted by rising costs of managing their properties, with 38 percent citing the high cost of repairs as one of their biggest concerns.

“The problem impacts landlords with a buy-to-let mortgage the most severely, as these additional overheads, combined with recent changes to the private rental sector, mean smaller landlords hoping for a steady income in retirement are now worrying that their properties won’t even cover their own costs.”

A surge in supply of properties on the housing market could mean these landlords struggle to sell, leaving them unable to cash in their pension investment or being forced to sell for less than anticipated.

The problem disproportionally affects older landlords, who have little time to make changes before they need to rely on their properties for a retirement income, with those over 55 most concerned about making too small a profit on their properties.

Investing in property as a pension plan is more prolific in the over 35’s, with 47% of this age group admitting to doing so, compared to just 24% of their younger counterparts.

Eileen Cooper, a landlord with two properties, has felt the impact of changes first hand. As a self-employed, part-time landlord, Cooper was relying on the rental properties to provide an income later in life.

She said: “We planned to buy another property once the mortgages on our current rental properties are paid off, however we have now decided against this due to the new laws and regulations brought in by the government, along with the ongoing changes to the tax system, which make it much less viable as a long-term investment.

“Due to changes in laws and regulation, the time required to manage the properties isn’t worth it.”

Source: Mortgage Introducer