Traditionally, saving for a pension was the safe bet. It’s still the route pedalled by the government with compulsory private workplace pension schemes now in place as part of a national plan to address our ageing population.
But confidence and trust in pension plans has been diluted over recent years: with interest rates at record lows, Brexit uncertainty playing havoc with the financial markets, and funds being wiped out through poor decisions by green-eyed monsters at the top of big organisations with the likes of Sir Phillip Green & co — it’s no wonder.
As a result, more and more people are looking to their home to fund their pension, or at least enhance the one that they already have.
But what are the realistic options on the table when preparing for retirement?
Your property retirement options
As retirement looms, consider downsizing a step up, rather than a step down. From financial freedom for your twilight years, to spending less time dusting spare rooms that are never used and smaller (if any) mortgage payments — it’s an increasingly popular option allowing people to take control.
Once your mind is made up, and you’ve found your next dream home, there’s just one thing left to do — sell your home.
The last thing you want at this stage is uncertainty. But is a guaranteed house sale realistic?
Yes. If you choose a property cash buying company, rather than an estate agent.
So what’s the difference?
An estate agent acts as a middle man between buyer and seller, charging a fee for the service. What they can’t control is the sale itself. To put it into perspective, 38% of agreed house sales fell through in the UK in 2018. Reasons range from buyers changing their mind, to chains simply collapsing and lenders not agreeing mortgages — the list goes on.
On the other hand, a property cash buying company is the buyer, so once the price is agreed you’re guaranteed a sale. And the benefits don’t stop there:
- Speed: They simplify the selling process to make sure it’s quick, and can usually exchange within a couple of days. In essence, the timeline is in your hands.
- No Fees: There’s no hidden costs or selling fees to contend with, and some will also cover your legal fees. That means the price you agree, is the amount you will get. Cue, holiday planning.
- Hassle free: You don’t need to spend time nor money sprucing up your home to sell. Companies like Hull Cash Buyers will make a cash offer on any home they see, no matter what state of disrepair its in.
Like anything property cash buying companies aren’t made equal, so choose carefully. Always opt for local companies rather than national companies; you’ll receive a much more personal service, fairer price, and no punitive contracts.
GET A LODGER
A lodger offers consistent monthly income, rather than game-changing amounts from selling to create financial freedom, but it’s still a solid option if your house is big enough and you live in a desirable area; for example, London.
If you do choose this route, then you can apply for the Government’s rent a room scheme, which will allow you to earn a threshold of up to £7,500 per year, tax free.
If you don’t want to move, but need access to more money than renting will allow, then equity release is another option.
It basically means that you can access the equity (cash) tied up in your home if you’re over 55, either as a lump sum or in instalments. Interest works on a compound basis, so it’s calculated on the total amount including previous interest.
But it’s not all one way traffic, and you need to consider the drawbacks first:
- Mounting Debt:
- It can be short lived financial freedom after the initial payout. Compound interest can increase the size of your debt very quickly. At a typical rate of 4.5%, your debt will have doubled within 16 years.
- No exit:
- You’re penalised heavily for leaving early. To get out, you usually have to pay around 25% of the initial borrowing, which isn’t always an option, which can make you a prisoner of the scheme.
- No other options:
- You can’t take out any other loans using your property as security.
So we’re back to the pension vs property question that we started with. What’s best? It really is based on personal circumstances, but exploring your property options whilst growing a pension is probably the most sensible route for most.