Renting in retirement; is it really affordable?

Posted on December 14th, 2017 | Categories - News

Renting and retirement; two words that usually don’t appear next to one another.

For most people, thoughts of retirement are accompanied by a number of concerns; the biggest usually being that the mortgage is finally paid off. Rarely does the notion of renting appear, but that is very much the case for an increasing number of people in the UK.

It’s no secret that rising house prices mean that we are borrowing more and for much longer. The thought of still paying the mortgage in retirement is worrying enough, but how feasible is it to remain a tenant when you no longer earn a salary?

Rise of the renters

Over the next 15 years, the number of retirees renting their home is expected to double to nine million (Source: National Landlords Association).

For many people, this stems from rising house prices, making buying impossible. However, the average price of rent is still a significant portion of the average person’s income, with 50.1% of the average salary being spent on rent across the UK. This figure takes the average salary of £27,200 and the average rent price of £909 per month (Source: ONS).

There is a wide regional variance, with the average monthly rent price being:

  • £1,556 in London (85.7% of the average UK salary)
  • £528 in the North East (29.1% of the average UK salary)

Retirement makes renting more difficult. With a predicted annual income of £18,700 (Source: Prudential), those retiring today will pay an average of 42% of their income in rent (Source: Scottish Widows).

Is renting sustainable?

Yes, no and maybe.

Whilst renting can eat into a significant portion of your income, it makes it difficult, not impossible. People choose to rent in retirement for a number of reasons, such as passing home equity to children, or selling their home to boost their pension pot. There will also be a group who have had no choice, being unable to purchase a property during their working lives.

One of the main concerns with renting, is the lack of control. For example, if your landlord decides to increase the rent, then you have little choice but to pay it. If this exceeds your monthly budget, then you will find yourself in financial difficulty. There is also the possibility that the landlord may want to sell up, or terminate your tenancy. Whilst those in Scotland have protection against forced evictions with the Private Housing Act (Source: Legislation.Gov), tenants in England don’t benefit from the same security.

There are of of course advantages to renting, such as:

  • Increased flexibility
  • Fewer maintenance bills (assuming landlord is willing to help)
  • Not taking on a commitment that you can’t afford

What are the alternatives?

Though it may sound obvious, buying a home and paying the mortgage off before retirement is a good start.

This will require careful financial planning, but there are a number of ways to boost your efforts, such as:

Workplace pensions: If you are an eligible employee, you will be automatically enrolled into a pension scheme by 2018. This offers a great way to build a pension pot, as three parties effectively pay into it:

  • You
  • Your employer
  • The Government (in the form of tax relief)

Lifetime ISA (LISA): If you are saving for a deposit on a first home, or retirement, the recently introduced LISA could be an effective way. Available to those aged 18-39, the LISA offers a Government funded 25% boost on any deposits (with the annual allowance being £4,000). Any money paid into a LISA can only be used for a first home purchase, or accessed after the age of 60.

Early access is possible, but it means forfeiting any bonuses or interest accrued.

We can help

For more information on preparing for retirement, whether that be in a rented home or otherwise, get in touch.

We’re here to help, call Sarah or Bev on 0115 933 8433 or email info@investmentsense.co.uk.