Living in the family home in retirement is something of a burden for many people, as once your offspring have flown the nest the chances are you will have more room available than you actually need. Thanks to the British obsession with property, the latest official figures show that we actually now have more money tied up in our properties as we reach retirement than we do in our pensions.
Office for National Statistics (ONS) data shows that two-thirds of those over 65 have more than £100,000 in property wealth, while just two in five have the same amount or more in their pension fund.
So it is no wonder that with more than 10 million retirees owning their own homes it is common to look at whether releasing cash from their house is a good way of supplementing their income. There are a number of ways to do this.
Should I sell my house?
Around a quarter of retirees are considering downsizing, according to research from Prudential, with £62,000 the average amount they expect to release from their property. Most will downsize for a simpler life, as running a smaller home is easier in later years, but nearly a quarter want to raise money to boost their retirement income, 13 per cent want to pay off debts, and 8 per cent are selling up to help with everyday living costs.
Consider options carefully
Of course, in the housing booms we have seen in past decades, using your house as a retirement fund has proven to be a reasonable move and significant amounts are released, but you need to consider your options carefully.
For example, if you are downsizing and planning to move to a smaller property in the area you currently live in because that is where your social life is, you may have less to play with than you think, especially when you take into consideration the actual cost of moving.
In research at the beginning of last year, Lloyds TSB found that it costs nearly £9,000 just to move home and that the cost of moving has risen by 69 per cent from 2001 to 2011.
Over the same period, property prices rose by 64 per cent. So if you want to generate income from a property move rather than just preferring to live in a smaller property, you may want to consider an alternative way to boost your income.
Anyone over 55 can access something called equity release, which is a way of releasing cash from the value of your home without actually having to move.
There are two forms of equity release, one which is effectively a mortgage on your property – a lifetime mortgage – the other where a lender will ‘buy’ part of your home from you – a home reversion plan – but allow you to remain living there.
With a lifetime mortgage, the interest on the loan is not typically repaid each month, although you can do this with certain lenders if you want to. In most cases the interest is rolled up and charged against the property when you die, which would reduce the amount you are leaving behind for your heirs.
Steve Rees is managing director of debt consultant Vincent Bond & Co. The views expressed here are his own.
