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Your retirement

Retirement planning has changed dramatically and people have more freedom and choice.

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Harnessing property to generate a retirement income

Friday, April 15, 2016

Elderly couple standing outside of house

The expression “as safe as houses” has proved highly appropriate over recent years, as the nation’s growing army of residential property investors see house prices rise.

However, there are also ways to use one’s own home to supplement a retirement income.

  • What are the benefits of downsizing?
  • Why some retirees are letting their property
  • Finding the right property for your needs

Renting out a second property

Residential property has become the long-term investment of choice for many: one in five households are currently rented privately, and many are owned by investors with just one or two houses or apartments.

A great many older investors are becoming a “buy-to-let landlord”. Those who were able to acquire property when it was less expensive, have channelled their savings and pension pots into “bricks and mortar”, or have inherited a property or lump sum.

The privately rented figure is expected to continue growing to reach one in four households over the next ten years as more people either opt to rent because of the greater flexibility this offers, or simply find themselves unable to get onto the property ladder.

Would downsizing be right for you?

For those “asset rich and cash poor”, moving into less expensive accommodation will not only release cash to fund your retirement, it can also cut outgoings and reduce the physical burden of maintenance. And with a third of those approaching retirement set to be ‘property pensioners’ – meaning they’ll rely on money tied up in their home to see them through retirement – downsizing is the most common way to raise capital.

But there are significant costs involved in this – mostly due to stamp duty which, based on the average house price, would rack up a £4,600 bill.* Unsurprisingly, this hefty charge is proving off-putting to pensioners, with 42 percent saying they’d be more likely to downsize if a tax cut were introduced. Suffice to say, stamp duty is a serious consideration if you’re considering downsizing.

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Cartoon image of houses : The state of retirement 'property pensioners'

View the first chapter in our annual 'State of Retirement' report which looks specifically at ‘Property Pensioners’, who are relying on income from their property when they retire.

As well as factoring in these fees, make sure you take into account the costs of moving and the loss of space – you may end up selling more valuable assets for a refund to save on storage fees. And finally, think about where you are moving to: will you enjoy the same social network and access to your friends, family and amenities – especially if you give up driving in future years?

Become a live in landlord

You can also top up your income by becoming a “resident” or “in-house” landlord: the tenant’s rights will depend upon whether they live in a self contained area or share part of your living space.

The government, keen to promote this, recently increased the threshold that you can receive to £7,500 pa (or £3,750 pa if you let jointly) before any income is taxed

Do check out references carefully – but if you choose the right tenant, this can be a very sociable way to top up your retirement income!

Equity release can work – if you get the sums right

For those with their wealth locked up in property, equity release allows you to either borrow against the value of your home, or to sell all or part of it in exchange for a lump sum or regular monthly income. You should be allowed to remain in your home for as long as you then wish to do so.

Some plans allow you to draw down sums over an extended period (so you only borrow and pay interest on as much as you need). Check the effective rate of interest that is being charged as this can vary considerably.

For most of us, our home is not just our “castle” but our biggest capital asset too: used wisely it can play a big part in funding our retirement and possibly our future care needs as well. For those with available cash to invest, a second property could also offer an interesting alternative to ISAs, annuities or playing the stock market.


*According to the Office of National Statistics’ House Price Index (Jan 2016), the average cost of a house in the UK is £292,000. Based on current stamp duty rates, 2% tax would be payable on £125,000 (between £125,000 and £250,000) and a further 5% would be payable on the remaining £42,000. Therefore, £2,500 + £2,100 = £4,600.

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