Planning whether to buy or rent after you retire is important. After-all owning a home can be a thing of beauty. Your mortgage is paid off, you can start living the retirement life you had planned out for years.
On the surface, you have the security that your housing will pretty much be free. That may not be the full story.
Renting keeps your options open and means if you want to move to a different location – maybe the weather is better there – then you can. Renting allows you to move close to your family when the time is right. With renting this is all possible as it can be done affordably.
Figures from the English Housing Survey showed that close to 1.5 million people that are 65 or over are now choosing to rent. This figure is on the rise. Many of these retirees are doing so by choice, as it suits them better, rather than being forced to.
It is projected that around a third of people aged over 6o and retirees will become renters in the future and that the days of owning your home may be in decline.
How possible is it to rent without an income? What are the benefits of moving into an affordable retirement apartment when you currently own your own home?
Considering Retirement Living: Home ownership vs. Renting
Pros and cons of renting in retirement
When it comes to renting at retirement age, there is the option of renting within a retirement development. These types of developments are often offered on an assured tenancy basis.
Such retirement living complexes can provide a social life on your doorstep, becoming like little villages all to themselves. This can be a huge advantage in later life.
In these retirement developments, there are often lots of activities to participate in such as coffee mornings and a number of outings.
By way of an example, Girlings rents apartments in Yorkshire, which is designed for over 55s. The rent is affordable and the service charge is included. Those who claim housing benefits are welcome.
A great benefit to using accommodation companies such as Girlings is that you can have the security and confidence that you can be on-site for life. Apartments such as those offered by Girlings will come with an assured tenancy so can be worth making the move to rent.
Renting doesn’t take away your ability to get away for a break. Girlings retirement rentals offer their customers the chance to stay in guest rooms in their other properties for £25 a night. This really makes paying rent an affordable choice as those rates are cheaper than a hotel.
There are cons to paying rent in the UK. The most widely known one is that you will never own the site. The homes you live in throughout your life will always belong to the landlord.
The rental lifestyle can bring about a lack of security as should the landlord decide they wish to sell the house, you will have to move out.
If you own your home or decide you wish to purchase a house, then you will be subject to paying Stamp Duty Land Tax. In short, this is a transfer tax for the person who purchases UK property. The amount of Stamp Duty owed is calculated based on how much the property cost to buy.
If you are considering leaving your property to a family member then you ought to consider Inheritance Tax and how that will affect the final amount. Nobody wants to leave a family member with a bill they can’t afford.
Risks to Consider
The interest rates on your mortgage payments can increase. To prevent this and help with budgeting, there are a number of fixed-rate mortgages available.
If you fall behind too far on your mortgage payments, the effects can be serious. Your home may be repossessed and you may face bankruptcy.
The process of buying and selling a home can take time. There is usually a chain and involves several people selling at or around the same time.
Advantages of Owning Property
Many people go into retirement without a loan and for those, the question of owning vs. renting may appear to be less confusing.
However, just because you don’t have mortgage payments doesn’t make it as clear cut as it first seemed. Costs will still need to be factored in such as maintenance. A new home will cost less in maintenance cost than an older property.
Even when you take that into account, there are still advantages for staying long term. So let’s take a look at them!
Home ownership comes with the advantage of enjoying the stability that brings. There will be no need to worry about landlords increasing the rent – you don’t have one.
Equally, only you can decide when it’s time to sell – not a landlord – so you won’t find yourself looking for a new home when you’re not expecting it.
Re-modelling and decorating can be done without the need to seek the owner’s permission.
Understandably some people later in life start thinking about inheritance and their desire to leave some. For others, homeownership is a good way to take out a loan or a line of credit. In these instances, owning your own property does make more sense. You will possess an asset, and it should hopefully appreciate.
There are plenty of affordable housing options on the market so if you are looking at an affordable way to build equity, this could be a perfect time to purchase a retirement property.
As a homeowner you will be able to make any changes to your home, whenever you want – some changes may require planning permission. This means that changing the bathroom or kitchen can add value to your home. The value you would not benefit from if you were to rent.
House prices have risen hugely in the last few years and are expected to rise by 20% in the next 4 years. Based on this, selling a house should prove to be a profitable venture.
Something that may not apply to all but worth considering. You may feel emotionally tied to your property or the idea of owning your home and may not want to lose that feeling.
Risks to Consider
If you are intending to take out a loan to purchase your residence then are a few things to consider:
- You will need to have 6 months’ worth of expenses in a savings account. This will include things such as bills and loan payments.
- You will need to have a good credit rating to get the best loan deals. A bad credit rating can lead to high rates of interest on the loans. This puts you in a worse position financially and most likely will find yourself repaying it back for longer.
- It is best to have at least 10% of the deposit saved
- As part of the loan agreement, you will be required to commit to paying a monthly number and not have any large debts that are outstanding
Advantages of Affordable Renting
There can be many advantages to selling your home and moving into a rental property, particularly one which is affordable and therefore attractive.
For those who already rent, the benefits are clear. However, for those considering the move let’s look at the positive reasons why it could be a move worth taking.
A survey conducted showed that most people choose to become renters because it is an affordable route to take. A Large proportion aged 55 years and over believed that renting suited their way of life. This was backed up by the fact these people were put off by the commitment attached to owning and maintaining a home.
Renting a house in a retirement village can provide the security and comfort that is important to many retirees.
Renting homes was seen to be a thing for the younger generations and millennial’s. However, the average age of those opting to rent is on the rise as more people at retirement age are entering the sector.
People making the move towards paying rent to a landlord is an affordable long term decision. Renters are attracted to the increase in flexibility that this lifestyle can provide.
When it comes to affordability, those paying rents come out better. The average rent in the UK is £700. Whereas the average monthly mortgage repayment amount was £750 in the UK. Over a 12 month period, this gives you a saving of £600. As you can see, renting has its benefits, certainly financially.
The cost of renting per month does on average tend to work out to be cheaper and more affordable than repaying a loan every month. This will give you the opportunity to budget and hopefully have more disposable income. Let’s be honest, that’s exactly what you deserve in your retirement!
We all love some degree of flexibility and renting can provide those options that ownership cannot -this means you aren’t fixed into anything long term.
Renting can be the way to go if you haven’t decided where you will be spending your retirement, or if you are looking to downsize or an empty nester.
Renting keeps your options open and means if you want to move to a different location – maybe the weather is better there – then you can. Moving close to your family when the time is right. With renting this is all possible as it can be done affordably.
When it comes to the owning vs renting debate it is important to compare costs. Affordability is an important factor for many, especially when it comes to renting.
There are several reports that show that becoming a tenant is less expensive in 98 out of 100 cities. This was in cities that had a large population of residents aged 65 plus.
Retirees considering different retirement properties may find that the best option is in the rental sector. This ought to be the most affordable manner of retirement living.
Maintaining a home can be expensive and somewhat of a drain on any income you may have. When it comes to the cost of this, it is reported that it will cost between 1 and 4 percent of the value of the home every year to maintain the upkeep.
It is also worth factoring in that the older the property, the higher these costs are likely to be.
Going into the rental sector is one option that will get you out of those costs!
Before you sign a tenancy agreement, ensure that the responsibility of the property maintenance and repairs to the property are the landlord’s responsibility. This will reduce your cost of living and make renting a truly affordable option.
As well as the cost of maintaining a residence, you have to consider your well-being. Over time your desire and ability to take on jobs around the house will slow down. This is a good reason and a big benefit to pass that burden onto a landlord.
If you decide that renting accommodation is the way to go, this can free up money for you to consider an investment opportunity.
Assuming these investments are sound, this can be a great way to increase your pension income in later life when it hasn’t been possible previously due to family costs or various things.
As a rule, investments will grow more quickly than the property will increase in value. In terms of making the best use of your money, investments are a good way forward.
Many people have experienced or witnessed a housing market crash. It’s never good news. As a tenant, this is something you wouldn’t have to concern yourself with. This can be a huge weight off your mind for many people.
Freeing up capital can help to reduce the costs your children may face when it comes to inheritance and tax associated with it. Gifting your children’s money ahead of time will ensure that they are not going to be liable for the tax – which can be a sizeable sum.
This may not be a solution for you if your equity is tied up in your dwelling. By selling and moving into rented accommodation, this makes it possible.
Possible Investment Opportunities?
There is no denying that buying properties and being on the housing ladder can have its benefits. An investment opportunity is one of those. Having said that, if you are purchasing a property for that reason alone, you may find that it is not quite the investment you were hoping for.
A lot of people consider owning properties as an investment. It isn’t.
Owning a home comes at an expense. An investment will generate cash flow and income. This is where housing ownership and investments differ.
Let’s take the fact a large chunk of capital is tied up into a house, there are ongoing costs. There is also no certainty that the value of your residence will rise. If you’re looking strictly for an investment, there are better ones to make.
Although, if you are looking for security and owning a dwelling outright is affordable and right for you. Then this can be a way to make money. A purchase that will most likely rise in value, without much input from you (though there is nothing stopping you from making your own improvements along the way), it can be an attractive proposition.
If you are struggling to decide whether or not to sell your home and move into rented accommodation, over 55s shared ownership is another option worth considering. In this scheme, a share of between 25% to 75% will be owned with rent being paid on the remaining share. This is more affordable than paying a mortgage or private rent every month and allows retirees to downsize to a more suitable property.
Many shared ownership schemes also offer Extra Care services to those who require them, allowing those in the third age the independence of living in their own space whilst still being provided with the care they need. One provider of retirement housing offering Extra Care is Housing 21, offering affordable housing for the over 55s in locations across the UK. Of course, there are many other housing associations offering similar properties, so it is worth comparing to find the perfect retirement property for your needs.
Being in tenancy can give you the freedom and remove any worry about the housing market you may have. The process of selling a home can be a long one, stressful too.
However, when it comes to selling out it can be profitable. Though not considered an investment in a true sense of the word, plenty of people do. House prices more often than not, go upwards. Especially if you make improvements to them.
If you have owned your residence for a long period, providing it is in a reasonable condition, you should find that it yields a nice return when it comes to cashing out. Where you go from there is your decision. Be that purchasing another dwelling or opting to go down the rental route, both are affordable and offer great benefits!
Whether paying rent or owning your own property is the right decision for you is the only one you can ultimately make. Let’s not forget the other route, which is assured tenancy through retirement living properties. These are described as a centre for ageing better. That sounds pretty inviting!
There are lots of pros and cons for both sides, which you ought to weigh up before jumping to any conclusions.
However, the main take from this article should be that both options can be affordable and always ensure that whichever route you go down is something you can afford and be comfortable with.