Why purchasing a home in later life is not the only option

12/08/2010

‘An Englishman’s home’ is carved deep into our psyche. But is property ownership really all it is cracked up to be? We talk to a financial consultant about the merits of renting.

Although renting still only accounts for 14% of the UK property market, the numbers are on the rise – albeit they still remain a long way short of other European countries, where up to 40% of people do not own their property.

But there could be major advantages in renting for many people in retirement – not least because it keeps your capital flexible in case your needs change in the years ahead.

 

Developers are now recognising this and increasingly offering a dual option – buy or rent – while some well-established providers, such as Holiday Retirement Management and Girlings – focus entirely on offering property that you can rent by the month but still provide a high degree of security.

Owning your own home is carved deep within the national psyche and there are strong emotional, cultural and financial reasons for this. 

 

Many people regard their property as a financial nest egg, an asset which can be passed on to family after their death. However, these days things are changing and letting agents say that the low stress, lifestyle flexibility and opportunity for better budgeting make renting appealing to a wider group of people.

 

Owning a property and staying in it as long as possible seems appealing but Independent Financial Advisor Brendan O’Sullivan of Finansec Financial Consultants warns of two serious wealth reducers to be wary of and emphasises the need to take the appropriate legal and financial advice before commiting yourself.

 

 

Inheritance tax (IHT)

Currently standing at 40% over the threshold of £325,000. If it weren’t a tax it would have a government health warning. The average value of a detached property according to Halifax House Price Index is £290,208, so just £34,792 in investments is enough to make an estate liable to 40% tax. With the right planning IHT can become a ‘voluntary’ rather than a ‘compulsory’ tax and there are a range of tax solutions available to suit everyone - making it essential to take expert advice.

 

 

Care costs

When someone becomes ill, things can change overnight and available cash assets become important. When money is tied up in a property that has to be sold to release cash, this can become an extra source of stress. In these circumstances, when the property has to be sold, it will be tempting to take a quick offer rather than holding out for the best buyer and sale price.

 

Arguably, without the right financial preparation care costs can be another compulsory wealth tax and preparing for the possibility, rather than reacting to the reality, can make all the difference financially in reducing the care fees burden.

 

 

How does downsizing compare?

A recent survey by Standard Life found that downsizing to a smaller house in order to create income is not always the cash cow it appears to be.

 

Typically, downsizing releases less than £100 a week of extra income. Standard Life calculates that if a homeowner downsizes from a detached home to a bungalow they could expect around £71 extra income a week but this could drop to only be £4 a week if the move was from a semi-detached house to a flat.

Income, legacy, tax and financial planning are important issues but for most people, a good quality of life in their retirement is equally important, including:
• Comfortable accommodation
• Security and peace of mind
• Good food
• Companionship / good neighbours

Many would also add:
• Freedom from the worries and costs of maintaining and heating/ lighting a home

• Flexibility to relocate quickly and easily should needs change

 

 

The overriding message? Home ownership has many advantages, but do look at all the options first