Significant fall in investor confidence in property

Interest rate rises have had a significant impact on people’s belief in property as an investment category, according to latest findings from the Standard Life Savings & Investment Index.

Confidence in people’s own homes as a savings vehicle for their financial future has fallen by just over 19% since October 2006 while confidence in buy to let has decreased by almost 27%. Following a steady increase in popularity in both property categories during 2006, the Index scores for people’s principal residence and buy to let are now close to the levels seen in January 2006. This reflects the increase in interest rates in November 2006 and more recently in January 2007, just a few days before the latest Standard Life survey fieldwork took place. In addition, the popularity of premium bonds has fallen by around 29%.

This has led to the overall Index score decreasing for the first time since research began in July 2005, moving from the highest score of 23 in October 2006 to a score of 21 today.

The overall Index score could have fallen further but has been buoyed by a significant increase in confidence in Notice Accounts and basic cash savings as a way for people to invest for their financial futures. As would be expected at this time of the year the popularity of ISAs as savings vehicles has increased by almost 10%.

Commenting on the findings, Trevor Matthews, Chief Executive of Standard Life Assurance Limited, said, “Until January 2007 the Standard Life Savings & Investment Index has shown that property is the most popular investment category in the UK. With interest rate rises having such an immediate impact on investor confidence, I hope that investors will now consider spreading their investments across a wider range of investment categories and vehicles when planning for their financial futures.”

Trevor continued, “It is worrying that only 31% of those questioned are satisfied with the overall level of their savings for retirement and our research shows that it is still the case that not enough people are saving for retirement. As an industry we need to encourage people to plan adequately for their old age.”

After the last wave of the Index witnessed retirement leapfrogging holidays as the main thing people are saving for, holidays have jumped back into first place in January 2007 with 51% of those questioned saving for holidays, up from 46% in October 2006. Home improvements and buying a car are in third and fourth place, after saving for retirement, with Christmas moving down significantly from 4th to 7th place.

One in ten expect to save less in the year ahead, while an encouraging 38% of people in the UK hope to save more. When respondents were asked if they had dipped into existing savings over the last three months, 29% stated they never dipped into savings, the highest score so far. Those dipping into savings to pay for holidays was significantly down from 31% in October 2006 to 23% in January 2007, the lowest score to date.