Property vs pensions: Is property as a retirement plan dead?
Limited house price growth, the hassle factor and more sustainable growth in equity markets are making the argument in favour of having ‘property as a pension’ harder to back
Whether to choose property versus a pension as a retirement plan has been a British conundrum for decades.
When the first buy-to-let mortgages were introduced in the late 1990s, would-be property magnates bought houses relatively cheaply, renovated and flipped for a profit against a backdrop of low interest rates, cheaper mortgages and more relaxed borrowing criteria.
Add to this the domino-like collapse of many a final salary pension scheme in the surrounding years and setting yourself up with a few rental homes to fund your retirement seemed like a good plan for many. But is it still?
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Richard Meek, managing director at Birmingham-based chartered financial planners Colmore Partners, doesn’t think so.
What are the risks of using property to fund retirement?
Beyond the diversification concerns of relying on any single asset as a long-term solution, Meek raises two main challenges.
“One reason people have made a lot of money in property over the last 20-odd years is because of gearing,” he says.
Most homeowners, unless they buy outright, put down a fractional amount of the property’s value. Yet any growth over time applies to the entire amount, so the ‘return’ can look very impressive. Of course, this applies to any losses as well, hence concerns about falling into negative equity whenever house prices have fallen sharply.
“Rightly or wrongly, in the UK, a house is the only asset this usually applies to, unless you’re super wealthy, so many people often assume that property is the best form of investment. I also find it very difficult to believe that house prices will continue to rise in the same way as they have in the past,” says Meek.
Those levered returns – or perceived returns – are multiplied with property portfolios. According to industry body Propertymark, the private rented sector (PRS) is still dominated by smaller landlords, with 45% owning one rental property and 38% owning two to four, while the 17% with five or more account for 49% of tenancies.
This magnifies upside potential but also downside risk, as Schroders’ head of strategic research, Duncan Lamont points out.
The effect of gearing has been used by many buy-to-let investors but as we’ve pointed out – it can also have the reverse effect.
“The sharp house price falls in 2008 left many highly leveraged landlords with negative equity,” said Lamont.
Schroders has run the numbers and said when compared to saving into a pension, the returns property typically generates just don’t stack up.
How returns from property compare to pension investments
Over the past 20 years, the asset manager said the value of the average UK property has only managed to roughly rise in line with inflation, while global equities – including dividends – are 7.3% ahead of inflation over the same period. Lamont says even without dividends being included, global equities have still outperformed inflation by nearly 5% a year.
“Based on these numbers, in cumulative terms, a property worth £100,000 in 2005 is now worth £103,000 in inflation-adjusted terms. Whereas £100,000 in global equities is worth £410,000,” he explains.
Lamont adds that in nominal terms – taking into account fees, taxes and inflation – that same £100,000 house would be worth £182,000 but a stock portfolio would be worth £728,000, or £450,000 if dividends are excluded from calculations.
These figures are based on house price alone, rather than rental income. Schroders’ number-crunching finds gross rental yields have averaged around 6% for the past 20 years, with wide variation by region and time period.
“[That 6%] is before costs and expenses, with net rental yields typically 1-2% lower,” says Lamont.
“Adding 4-5% a year to the property figures above would still leave global equities with a big advantage in total return terms.”
While looking over a longer timeframe – 50 years or so – presents a more favourable picture for returns from property, global equities still come out on top.
Several clients of Meek’s with second or multiple homes are keen to try and sell, fed up with the ‘hassle factor’.
“Given the choice, most would sell – not my advice but their decision. Most of that is to do with the hassle – maintenance, difficulty getting hold of tradesmen, an uncertain tax regime. For many, it feels like more trouble than it’s worth.”
Property management comes with other costs, such as upfront charges like stamp duty and legal fees and ongoing costs including insurance and letting management fees.
Compare this scenario to saving via a pension, where contributions are invested pre-tax and the government offers ‘free money’ in the form of tax relief and – if you’re in a workplace scheme – employer contributions.
Lamont added that with no upfront costs when investing in a pension, savers are better off from day one.
“Ongoing costs in a DC pension are capped at 0.75% a year but typical fees are lower,” he said. “Willis Towers Watson’s DC Pensions and Savings survey found that the average charge in 2025 was around 0.3%. Reducing the long-term real returns from equities by 0.3% a year or even 0.75% would not alter the earlier arithmetic which showed how much better stocks had performed than property.”
How do house prices differ around the UK?
It’s a very British tendency, borrowing hundreds of thousands of pounds to live in a house, and we’re often not even getting particularly good value, relatively speaking.
The Resolution Foundation finds the UK’s housing stock offers the worst value for money of any advanced economy, citing high costs and low quality. A 2024 report from the think tank shows UK households pay 57% more for the same (quality-adjusted) housing as their counterparts in Austria, and 36% more than those in Canada.
Echoing Meek’s concerns over concentration risk, Lamont believes housing is as undiversified as you can get.
“Pick the wrong property type in the wrong area and that one decision could have a material impact on your overall retirement savings, if you’re one of those who have preferred property to investing via a pension.
“Across major regions and property types, an average £100,000 property 20 years ago is now worth anywhere between £64,000 and £137,000, in inflation-adjusted terms.”
Flats have failed to keep pace with inflation in every major UK region over the past 20 years apart from in London.
| Detached | Semi-detached | Terraced | Flat | Overall |
|---|---|---|---|---|---|
North West | 0.0% | 0.1% | 0.1% | -1.0% | -0.1% |
North East | -1.0% | -1.0% | -1.1% | -2.2% | -1.2% |
Yorkshire and the Humber | -0.2% | 0.0% | -0.1% | -1.5% | -0.3% |
West Midlands | 0.0% | 0.1% | 0.0% | -1.4% | -0.1% |
East Midlands | 0.0% | 0.1% | 0.1% | -1.3% | 0.0% |
East of England | 0.5% | 0.6% | 0.5% | -0.8% | 0.3% |
London | 1.5% | 1.6% | 1.6% | 0.4% | 1.0% |
South West | 0.0% | 0.2% | 0.1% | -1.2% | -0.1% |
South East | 0.6% | 0.6% | 0.5% | -0.9% | 0.3% |
Scotland | 0.3% | 0.4% | 0.4% | -0.6% | 0.0% |
Northern Ireland | -0.3% | -0.2% | -0.6% | -1.1% | -0.5% |
Wales | -0.1% | 0.1% | 0.0% | -1.4% | -0.2% |
UK average | 0.1% | 0.3% | 0.4% | -0.3% | 0.1% |
Global equities |
|
|
|
| 7.3% |
Global equities (ignoring income) |
|
|
|
| 4.8% |
Property price growth over the past 20 years by region and property type, plus global equities, inflation-adjusted % p.a.
Source: Schroders
Investment manager Rathbones has also issued warnings against relying too much on property as a retirement plan.
Its latest Don’t Bet the House report looks at recent performance of the UK housing market and fresh factors shaping house prices, including slower real income growth, higher mortgage costs and a more demanding tax and regulatory environment around buy-to-let investments.
London has suffered a particular collapse; house prices fell in 17 of the 32 boroughs in 2025 – a total 1.7% fall across the capital. This masks dramatic falls in places such as Westminster or Kensington and Chelsea, where prices plunged 14% and 7% respectively.
Further, it examined house prices in the 25 local authorities (LAs) in England with the highest density of second homes, finding areas with high concentrations of second homes have also seen prices fall disproportionately. The report reveals that 19, or 76%, of the 25 LAs witnessed declines in 2025, compared to 26% nationally. This rose to 20, or 80%, by the first quarter of 2026.
Charlie Newsome, senior investment director at Rathbones, says: “We’re seeing many people selling their buy-to-let and other rental properties because they no longer make sense as short to medium-term investments, and they are putting that money into invested portfolios instead. Right now, residential property isn’t seen as a driver of wealth for later life and retirement for most people.”
