Featured article courtesy of Open Property Group
Retirement: The issues you might face
It is a truth universally acknowledged that most retired homeowners have the bulk of their fortune tied up in their homes. The historical rise in property values combined with the inevitably large-scale and long-term nature of property investment mean that although retirees may look extremely well-off on paper, their ability to access that wealth may be far less than they would like.
This is not a new phenomenon, but it is one that is increasingly pertinent. An aging population, changes to pension legislation and a much publicised national housing shortage have combined to put property a headline issue for retirement planning.
For the most well off, the obvious solution is simply to downsize, release a chunk of equity and raise a glass to the long-term security of bricks and mortar. But not everyone is quite so fortunate. For many, downsizing is simply not a practical option, especially when being left with no option but to sell your house.
Indeed, research from Quick House purchasers Open Property Group has shown that more than one in three of retirees’ house sales are made on the basis of financial crisis. Instead of downsizing such individuals are left no choice but to stay with family or friends, or to rent privately on a month by month basis.
In such circumstances the growing popularity of equity release schemes – whereby a homeowner effectively takes out a loan against the property that is not repaid until it is sold – may be a viable option. However, the return to a form of debt is not to everyone’s taste.
Less dramatically, empty bedrooms carry the potential to generate immediate revenue. The government’s Rent a Room Scheme offers a tax incentive to let out a room. Inviting someone to live in your house may not be an ideal solution, but at least it offers the means to generate £7,500 per year tax free.
A more urgent solution
And as the mention of both health issues and financial hardship implies, for some, the need to release their equity is a matter of considerable urgency. For homeowners in such circumstances the options are more limited.
Happily, specialist fast sale specialists have become a feature of the financial service sector, enabling those in the most immediate need to realise the equity from their homes. At the same time, a growing proportion of retirees are moving into the rental sector. A recent Prudential survey has shown that as many as 42% of retired renters are former homeowners. The status of homeownership remains, but the stigma once associated with renting is most definitely outdated.
It remains a universal truth that retirement planning must be carried out on the basis of each and every person’s individual circumstances. Sensible planning and professional advice go hand in hand with a pointed attention to each person’s all-round situation. But changing times mean that, for some, even the best laid plans may be subject to disruption. In such cases being able to act with intelligent and informed flexibility is vital. Retirement planning is never a one-off activity – it is an ongoing process.