A House, a Home…maybe even a Pension?
by Ritchie Mehta (25 June 2008)
According to the National Office of Statistics, the UK has an aging population. The latest figures suggest that the population aged over 65 grew by 31 per cent, from 7.4 to 9.7 million, while the population aged under 16 declined by 19 per cent, from 14.2 to 11.5 million. This poses considerable problems for the Governments pension provision for the elderly as the ratio is now just three workers to every one retired person.
It is almost certain that the UK population will have to be much more reliant on making their own
UK pension arrangements if their lifestyle in retirement is to be protected. Recent figures suggest that the UK population is far from making this a reality. According to the Fidelity Retirement Index the average Briton will see a 53% drop in income once they retire, forcing them to make do with a mere £215 a week – less than being on income support. However, with a host of new financial products such as
Equity Release, could a property act as a pension as well? Could
first time buyers actually not only be buying their first home, is it feasible that their new property could become a source of additional
retirement income.
The answer that may bring widespread comfort is yes - perhaps. Many financial institutions now offer retiring or retired homeowners the ability to extract the value of their properties without moving out, giving them a secure income. However the downside to such products is that upon death the financial institution has a claim on the property thus leaving a reduced inheritance or potentially no inheritance for the family. This type of product has been picking up steam despite the recent downturn of the mortgage lending market. According to Antony Rafferty of Norwich Union, “equity release has by and large been unaffected by the issues faced by the mainstream mortgage market."
If on the other hand, you would like to leave the children or grandchildren something after your gone, then an alternative to Equity Release could be to rent out a part of your home. This will give you a stream of income each month for you to enjoy and the peace of mind to know you still have your home. With current UK property market conditions tough many people are finding that
renting or letting a room is one way to weather the storm. This is illustrated by the Association of Letting Agents who suggest that 39% more agents reported that demand outstripped supply, demonstrating the robustness of the rental market generally.
So it seems that house purchase can be an alternative (at least in part) to a conventional pension and is therefore worthy of careful and diligent investigation. However, the options open differ greatly and one should take advice and act carefully when deciding which option suits.