Equity release is not the only way property can be used when planning for retirement. Peter Girling looks at renting accomodation
Many people today have the property, but not the money to enjoy their impending retirement. Thanks to disappointing pension payouts and rising living costs, many people are already looking at options which will enable them to release capital tied up in property in order to fund their retirement. Financing retirement is fast becoming the most critical issue today.
According to research by the Independent Financial Advisers (IFAs) Promotion, the need for advice about retirement planning was the driving force behind the record demand for IFAs in 2006. People over 60 are increasingly turning to IFAs for their expertise and this trend looks set to continue as by 2010, more than 20 million people in the UK will be over 55.
Options such as reverse mortgages or equity release are no longer dirty words. In fact, the market is growing steadily. However, with Financial Services Authority reports highlighting an unacceptable level of mis-selling of lifetime mortgages - the most popular form of equity release - by untrained advisers, it is clear that IFAs still need to be educated about this market. They need to be able to give their clients an accurate picture of the equity release market, which includes both the pros and cons and clearly explains factors such as the potential of rising interest rates and the risks involved.
While equity release might be suitable for some people in retirement, homeowners should explore all the other available options. It is equally important that IFAs are up to speed with all the developments in today's market. They must also understand the needs and motivations of their clients and be prepared to ask sensible questions - not just about how much money their clients need for living and how much they want to invest - but how and where they want to live in the future.
Many people want to downsize at this stage in life and move into suitable retirement accommodation, so it is important for IFAs to understand the dynamics of the current retirement housing market and the options available. One of the main issues today for people looking to downsize is the lack of high quality and suitable retirement properties. Another major problem is price. New retirement developments are often prohibitively expensive and if people are looking to downsize in order to free up capital, this option simply is not viable.
Similarly, equity release schemes have drawbacks for elderly homeowners. While they might enable homeowners to release capital from their own properties without having to move, elderly people's living requirements may change quickly. A home that is easy to manage for a person in their seventies can become too big and cumbersome to maintain as they grow older. In today's increasingly uncertain property market, the value of the property might depreciate to the extent that it is unfeasible for the homeowner to sell up and buy a smaller retirement property and still retain enough funds to lead a comfortable life.
So what are the alternatives? Are there any new options that can address the dual problem of funding retirement and ensuring your client is living in comfortable and suitable retirement accommodation?
One of the alternatives is to rent a retirement property on an 'assured tenancy' basis, where the tenant has security of tenure for life. Unlike other tenancy agreements, the tenant, and not the landlord, is in control. They can decide how long they want to remain in a property and it is this security of tenure which is giving many tenants peace of mind throughout the UK and is fuelling the growth of the retirement rental market. Through its limited partnership with Norwich Union, Girlings Retirement Options is one such company able to offer assured tenancies in retirement developments throughout England, Scotland and Wales.
One of the main financial attractions for people is that the rental rates on such properties can include the service charge and are in line with the RPI. Tenants can be assured that any annual rent increase will be capped at 6% a year. This provides additional security and enables tenants to budget and plan for their financial future. There are no hidden service charges involved. Ground rent, building insurance and maintenance costs are included in the rent. Tenants can also enjoy communal areas including lounges, laundry facilities and gardens. Each property also has a 24 hour care-line system and a house manager is on hand at most sites to address tenants' needs. Most developments are situated in convenient locations with access to shops and public transport.
One of the most important things to consider is that people opting to rent in retirement are looking to tidy up their financial affairs. They want to ensure they have enough to cover the rent and live comfortably but also are looking for sound advice about investment opportunities that will deliver strong ROI. They will be in great need of advice from IFAs about where to invest their money, in order to get the best return to ensure they can live life to the full and also bequeath money to their children. For these people, the role of the IFA will be essential.
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