RENTING IN RETIREMENT: DOES IT MAKE SENSE?

Fifteen years ago, after half a lifetime (well, thirty years) of being an owner-occupier, I became a renter again.

I’d bought my first property in my late twenties; a modern flat in Brooklands, just south of Manchester and conveniently close to Sale Rugby Club, where I played rugby and squash in the lower echelons.

It was much easier to get on the housing ladder then, compared with the problems faced by today’s younger generation. So one took it for granted that was the best thing to do.

(By the way, that rugby club, which then boasted three members of the England team, has moved since. Sadly, I don’t recall their having consulted me on the matter.)

Many years later, as you’ll know if you’ve read my book “Back to the Black”, I encountered a severe financial problem due to the failure of my business. Becoming a renter again was part of the solution.

As it happened, I found that there were more advantages than I’d expected; but at the time I didn’t think that this was what anybody approaching retirement age would do from choice.

So I was quite surprised to read an article in the November 2013 issue of Moneywise, with the headline “Retirement Renters.” The subheading read “Retirees are increasingly turning to renting rather than owning their homes …”

The article made some good points, though I don’t agree with it totally. It’s available in full online – see below for a link (it’s not behind a paywall, for which fact they get my vote), so I am sure that the magazine and the journalist Zoe Dare Hall will not mind my quoting extensively from it. Here’s my edited version, with my own comments in CAPS.

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How to rent in retirement 

by Zoe Dare Hall

Retirees are increasingly turning to renting rather than owning their homes. 

If life goes to plan, you spend your active years scaling the property ladder. Then, in retirement, you sell up, rent, and enjoy the proceeds.

“IF LIFE GOES TO PLAN … YOU SELL UP …” – I’M NOT SURE I AGREE WITH THAT. MOST PEOPLE I KNOW TRY TO PAY OFF THEIR MORTGAGES BY THE TIME THEY RETIRE, SO THEY CAN CUT THEIR COSTS BY LIVING MORTGAGE-FREE.

SOME USE EQUITY RELEASE TO FREE UP CASH, BUT THAT’S ANOTHER MATTER.

THE IDEA OF SELLING UP AND THEN RENTING, THOUGH IT HAS ADVANTAGES WHICH ARE DISCUSSED HERE, SEEMS RELATIVELY NEW TO ME.

Given the trend of house price increases – Halifax records a 30% rise in the past decade – and the fact property accounts for 40% of our individual wealth, more people are becoming renters in retirement.

It is not always through choice, however, according to Prudential, whose recent report into the matter finds one in seven people will retire with no pension. Of the one in four retirees who rents their home, almost half of them (42%) were previously property owners. Their main reasons for selling up were to pay off debts, finance divorces, boost retirement income or help their children.

DON’T GET THE LOGIC OF THIS TOTALLY. RENTING TO BOOST RETIREMENT INCOME (OR TO HELP YOUR CHILDREN) ASSUMES YOU CAN EARN MORE INCOME FROM INVESTING THE PROCEEDS OF YOUR HOUSE SALE THAN YOU’LL PAY IN RENT. AND IT’S A CHOICE, DESPITE WHAT THE ARTICLE (OR THE PRUDENTIAL) SAYS.

However, for people choosing to rent in retirement, there are many benefits. Average rents tend to keep up with real incomes as opposed to inflation, so if history repeats itself, this can keep your housing costs down. 

THERE ARE INDEED BENEFITS BUT I DON’T SEE THIS AS ONE. HISTORY ALSO TELLS US RENTS CAN GO THE OTHER WAY.

 You can also avoid the burden of maintaining your property. Landlords are typically responsible for repairs and maintenance and over a 10-year period that can amount to anything between £10,000 and £20,000.

AGREED: THAT WAS A MAJOR BENEFIT FOR ME, ESPECIALLY AS I RENT A VICTORIAN PROPERTY. GIVEN THE POOR CONSTRUCTION QUALITY OF SO MANY BRITISH HOUSES, PASSING THE MAINTENANCE RESPONSIBILITY TO A LANDLORD COULD BE AN ATTRACTION FOR MANY.

The other benefit of renting is flexibility. Typically, tenancy agreements in the private rental sector have a minimum six-month break clause. Some canny retirees stay in the UK for the summer months and then rent abroad during the winter, saving the hassle and risk of owning a property abroad.

OK, PROVIDED YOU ARE ORGANISED ENOUGH TO MOVE SOME OR ALL OF YOUR EFFECTS INTO STORE FOR THE MONTHS YOU ARE AWAY.

There are, of course, certain downsides to renting, too – unwelcome in your advanced years. Landlords can decide to sell up or increase the rent unexpectedly, subject to the contract, and some fail to maintain the property adequately. Additionally, if you fall ill and end up in hospital, you will still need to pay your rent.

ALL GOOD POINTS.

Financially, selling up may not always put you in the strongest position either, as research shows renting typically requires more funds than owning. Prudential suggest retirees pay an average rent of £423 a month, whereas – purely in terms of their home loans, not including maintenance costs – homeowners pay £257 a month.

IF THOSE NUMBERS ARE TYPICAL, THAT CONTRADICTS THE CENTRAL IDEA OF SELLING UP TO BOOST RETIREMENT INCOME.

That said, renting can be a way to boost your pension pot, acquire flexibility of tenure and remove the responsibility of maintaining a home.

FAIR ENOUGH.

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THE ARTICLE  ALSO INCLUDED  THE FOLLOWING SECTIONS:

Ways to rent in retirement.”

“What to watch out for.”

 “The cost of renting.”

THEY ARE WELL WORTH A READ, IF YOU FEEL THAT RENTING IN RETIREMENT IS AN OPTION THAT MIGHT SUIT YOU.

SEE BELOW FOR LINK.

I’VE PICKED JUST TWO ITEMS FROM THOSE SECTIONS; HERE THEY ARE WITH MY COMMENTS.

1. “Purpose-built retirement developments.” 

…  A NEWISH TREND IN THE UK, THOUGH COMMON IN THE STATES, BUT WORTH LOOKING AT IN MORE DETAIL FOR OLDER PEOPLE.

ESTHER RANTZEN WRITES IN PRAISE OF THIS IDEA IN THE SAME ISSUE OF MONEYWISE.

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2. “Apart from in Scotland, where it is illegal to charge tenants any fees to rent a property, you may have to pay 

  • Application/referencing fees (up to several hundred pounds). SEE BELOW!
  • Deposit (normally four to six weeks’ rent). NO PROBLEM THERE. THAT’S TO BE EXPECTED.
  • Inventory (from £50 to £150). This may or may not be included in the application fee.”

DON’T GET ME STARTED ON AGENTS CHARGING TENANTS!

THE LETTINGS AGENT’S CLIENT IS THE LANDLORD, NOT THE TENANT. SO HOW IS IT THAT THE AGENT CAN CHARGE FEES (APPLICATION FEES AND INVENTORY FEES) TO BOTH PARTIES?

SURELY AN AGENT CANNOT REPRESENT BOTH PARTIES TO A TRANSACTION. IT IS A CONFLICT OF INTEREST AT BEST, A RIP-OFF AT WORST.

CLEARLY THE SCOTS HAVE A MORE LOGICAL APPROACH.

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AND HERE’S THE JOURNALIST’S CLOSING SENTENCE:

“…a final word of advice:  Make sure you consult a property inheritance tax expert before you sell up.””

EXCELLENT ADVICE!

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WANT TO KNOW MORE?

For a copy of “How to rent in retirement”, click HERE.

For info about my book  “Back to the Black”, click HERE.

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