I published a post on this topic yesterday, on my site Get Back To The Black. Here’s a LINK.
Category Archives: Personal finance
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.
GUEST BLOGGER REDUCES DEBT BY 78%: BACK TO THE BLACK BY MARCH
Here’s another post from our guest blogger “Ms Silver Screen Suppers.”
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Greetings from a born again penny pincher. There is very good news from my bank account. When I started my project in March to get myself Back to the Black I was £6505.99 in debt. I have whittled that down to £1456.75 in less than 6 months. How the hell have I done that, I hear you ask? By changing my entire attitude to money I reply.
Michael’s book has turned the way I think about dough completely upside down. I no longer have my head stuck firmly in the sand, instead I hold it high, looking out for the reduced section in the supermarket!
The biggest lesson I have learned from Michael’s book is that it is easier to make small cutbacks on spending than to bring in new sources of income. For me this is SO true. The ebay-mountain grows – things have been measured photographed and stuck in jiffy bags, but they have not yet been put up for auction. With the best will in the world, I fully expect all that stuff to still be under my sideboard by the time I write my next update for Michael. Me earning extra dough by selling the millions of things I have purchased on impulse is going to be a slow process.
However, I HAVE cut back on my spending and focused on paying down my debt rather than continuing to spend, spend, spend without having a clue what is going out – and what is coming in. I have got a grip on working out where all my money goes, and I am making tiny changes which mostly involve me being MINDFUL of what I am spending.
It’s true that I have had a fruitful few months in terms of what has come in (some bonus payments from work and a bumper run of DJing with The Shellac Sisters) but before embarking on my drive towards financial security I would have spent all of this extra money on fripperies. Instead, I have been carefully considering each and every purchase and realising that every penny I don’t spend goes towards paying down my debt. Thus, in March I said that I aimed to reduce my debt by 50% in a year and I have already blasted through that goal. So I hereby set myself another one.
In six months time I want to be Back to the Black. For me this means that when my wages hit my bank account on the 15th March 2014 I will not be a penny overdrawn. Can I do it? I’ll let you know.
Here’s what I am going to do to work towards it.
1 – concentrate on spending my money on things I need, not things I just happen to want
2 – reducing my grocery spend by using up the mountains of food I have stashed away
3 – reducing my bar bill by not drinking alone
4 – selling some stuff on ebay
5 – continuing to work through the suggestions in Michael’s book
I will report back. It’s all feeling very good!
Eating and drinking like the stars of yesteryear…
Silver Screen Suppers and The Vincentennial Cookblog
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With apologies to our intrepid guest blogger. She sent us this post at the end of September but as this site has been undergoing some changes we haven’t been able to publish it till now.
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WANT TO KNOW MORE?: If you’d like to read Ms Silver Screen Suppers’ brilliant blog about the recipes (both food AND drink, for you cocktail-lovers out there) of the stars of the silver screen, click HERE.
PAYDAY LOANS TO BE CAPPED
Yesterday’s big story on the personal finance front was the Government’s announcement about capping payday loans.
My first reaction was to look up Simon Read of the Independent, because he’s been a leading campaigner for regulation of the payday loans sector.
His article, in yesterday’s issue of the paper, reports on what was being said by the politicians; some predictable sparring there. I was more interested in Simon Read’s own overview of how effective these measures would be, so I went straight to his summary at the end. No apologies for reproducing it here.
Q&A: What should be done?
Q: Will a cap on the loans help people avoid falling into debt problems?
A: No. The key issues surround the widespread lack of responsible lending.
Q: How could payday lenders be more responsible?
A: One option would be to introduce compulsory affordability checks. Lenders often make greater profits from rolling over loans than from the original deal.
Q: How should they be stopped?
A: The regulators have already announced plans to cut back the number of rollovers allowed and the number of times lenders can try and recover their cash from people’s bank accounts. But their advertising also needs to be restricted.
(Simon Read)
RAIL PRIVATISATION: IS IT LEGALISED LARCENY?
Privatisation of previously state-owned utilities or other essential services is claimed to bring in lots of investment as well as private-sector efficiency. However, the return on capital by the UK’s privatised train operating companies in 2012 (the last year for which the collated data is available) averaged 147%, which implies high profits and / or low investment. Continue reading
WATER FIRMS’ INCREASE BLOCKED BY REGULATOR
Last week I read that OFWAT, the water industry regulator, threw out an application by Thames Water to increase charges by 8%.
Thames had asked for permission for this increase but have now been told that they can increase by no more than 1.4% above RPI, i.e. a total of 4.6%. This confirmed an earlier draft ruling by the regulator.
This raises the question: if OFWAT can do this, why can’t OFGEM do the same with energy firms’ charges? Doesn’t the energy regulator have any teeth?
Well, here’s something OFGEM did do: they recently published the fact that the wholesale price of gas had increased by only 1.7% in the past year. Well done, chaps.
Sadly, I haven’t heard what they plan to do about the imbalance between that figure and the very much larger increases in their charges to consumers.
Maybe they can’t do anything; if that’s the case, what is the point of them?
CUTTING ENERGY COSTS 2: CHECK OUT THE COMPETITION
The Government and Opposition are competing to appear the toughest on energy prices but it’s empty talk. Isn’t this the inevitable consequence of our rush to privatise every essential service in the UK in recent years, so as to get the assets off the national balance-sheet? Private-sector companies (whether based in the UK or France or China) exist primarily to maximise profits for shareholders. End of story.
So I liked this piece from Simon Lambert, Editor of This is Money, last Thursday (31.10.13)
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The star of the energy boss roasting show was Stephen Fitzpatrick of small supplier Ovo Energy.
He sent more stinging blows the way of the Big Six than the MPs supposedly delivering the grilling
Shortly afterwards, I joined Mr Fitzpatrick on Sky News, where presenter Kay Burley put me on the spot as to what I thought of his firm.
My reply was that I didn’t doubt that if we had more competition the fuel bills situation would be better.
The chunky rewards should mean a host of smaller energy firms vying against the big guns – instead the few that try say the system is stacked against them.
So I’ve decided to do my bit for the cause. I will ditch npower for a smaller challenger – even if it costs a bit more each month – and I’m erring towards Ovo or Ecotricity. What would you do?
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Well said, Mr Lambert. I’ll be looking at the alternatives too.
But clearly, not enough of us do look at alternatives.“98% of domestic consumers in the UK are supplied by the Big Six,” according to Channel 4’s Dispatches programme on 4 Nov 2013.
It’s another example of the good old inertia factor, which explains how Barclaycard remained the leading credit card company for years, despite having the least competitive rates.
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Some more useful facts about the energy market appeared on the Channel 4 programme I mentioned above.
They claimed that “The average profit margin on domestic (electricity?) supply is 3.4%.”
This figure came apparently from the programme’s forensic analysis of Big Six company accounts. However, I found myself asking: “what’s their ROI (return on investment)? It wasn’t stated but this surely is an even more important ratio.
Transparency of energy company finances.
I’ve heard from another source that while the average of the price increases already announced in this round (by members of the dreaded “Big Six”) is 9%, while wholesale gas prices have only gone up 0.5% in the last year.
If there is any truth in this, then there is surely a case for more transparency in the finances of the energy generating and distributing companies.
At the risk of repetition, why don’t the media publish return on capital employed or ROI? Then their profit figures would be in context. I used to work in Scandinavia many moons ago and I recall that one of the major Swedish dailies never announced a company’s profits without relating it to capital employed.
As Saint Jeremy Clarkson would say: “how hard can that be?” The answer: it’s not hard, but a lazy journalist knows it’s more fun to print a large headline figure in isolation, because that can feed outrage along the lines of “£2bn profit! That’s outrageous! They must be overcharging hard-working families.”
I rest my case.
CUTTING ENERGY COSTS
In the last week or so, I’ve heard and read lots of advice from those in authority about how to control household energy costs. Some of the advice has prompted responses such as: “they are living on another planet.” (Otherwise known as “they’re having a larf.”)
At the risk of prompting the same response, I’ll wade in with my own “two penn’orth”; two bits of advice that might help people to (a) monitor and (b) reduce their energy costs.
TIP 1: PAY BY DIRECT DEBIT … BUT FOR ACTUAL USAGE, NOT ESTIMATED
“Back in the day”, I used to cover my utility costs by the time-honoured method of paying the monthly or quarterly bill as it came in. This had the benefit that I saw the amount regularly, thus I had the option to do something about it if the costs seemed too high. (e.g. reduce thermometer settings and / or switch suppliers, just as the experts are telling us now.)
The downside: I might forget to pay; in the worst case ignore the bills so long that I’d be at risk of being cut off. It never happened; but it could have.
Then the suppliers came up with Direct Debits coupled with estimated usage; and offered a discount for paying that way. That made budgeting easier; but you can guess the downside; once you got used to that amount going out every month, you were less likely to query it.
But then, if unit costs increased (as they are about to do, again, by an average of 9%; in fact four of the “Big Six” have already increased) and the supplier didn’t advise you quickly, you might suddenly get a letter saying that your payment has to go up by a large chunk. (For example, a couple of months ago, mine went up overnight from £61 to £74 per month, which is a 21% increase; and I’m sure that it’ll soon go up again)
The other downside is that the estimate is often in the supplier’s favour, so that you are paying more than you need to, especially in the summer months.
The solution is maybe obvious to you, but it wasn’t to me. It came from a friend of mine who has lodgers. She needs to know her energy costs on an actual basis, so she can divide them up. So she has a Direct Debit (with the discount that goes with paying that way) for the ACTUAL amount, not the figure that the energy supplier estimates. I don’t know if they all offer this, but it’s worth asking. It seems the best payment solution for all of us.
TIP 2: GET A SMART METER
My energy provider offers a FREE smart meter and I am sure that others do the same. They can help you save money by giving you information, minute by minute, about how much energy your home is using. Here’s their video. (LINK)
“78% of customers say smart meters have changed their energy habits,” according to research undertaken by my supplier, who is one of the “Big Six” energy suppliers that supply 98% of the UK domestic market.
They also say: “Using a smart meter, you could save on average 3% a year on your energy costs. This works out to around £42 a year.” (for the average household)
Only 3%? I have never had a smart meter; but I plan to order one right away. My feeling is that if I know from day to day how much energy I am using at home (this little gadget monitors not only electricity but gas too), then I can save much more than 3%.
The meters make sense. Get one now! I’ll be ordering from my energy supplier, which is E.On (LINK), because theirs is free. If your supplier doesn’t provide one free, then do an online search, as you can get a wide range of energy monitoring gadgets elsewhere. For example go to Nigel’s Eco Store (LINK) or Amazon (LINK).
It is worth shopping around, as prices do vary and there are deals to be had. “Which?” have done a review: LINK.
PAYDAY LOANS SUMMIT: BUT NO ACTION YET
Payday loan providers have attracted column inches from many writers, including yours truly. Now these firms have been summoned to a “summit” hosted by Government ministers.
Will concrete action follow?
Here’s a précis of a story in the Independent today.
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Payday lending: adverts to face ban?
Payday lending advertising could be banned, under hard-hitting new rules being considered by the new City Watchdog the FCA.
The high-cost credit industry (that’s a new term to me) also faces a crackdown on the number of times they can rollover loans; and they may be forced to introduce time-lags, so borrowers don’t end up choosing a lender on the basis of how quickly it can get the cash.
This emerged from a Westminster summit yesterday. Consumer Minister Jo Swinson, who hosted the summit, said there is a need to control the number of loans borrowers are allowed to take out. She intimated that lenders could be forced to set up a central register of borrowers to cut the practice of multiple loans. One borrower reportedly had 34 different loans at the same time.
Ministers were told of far-reaching proposals that could ban daytime adverts on television that target the unwaged and vulnerable people. However the FCA’s Martin Wheatley didn’t rule out a blanket ban on lenders. “That power will be available to us,” he said.
Delroy Corinaldi of debt charity Step Change called for all payday loan advertising to carry a health warning that includes information about the risks of using high-cost credit. “In particular, companies must be clear that loans need to be realistic and affordable and are not a way to deal with long-term financial problems,” he said.
Citizens Advice’s Gillian Guy was keen to see new action on advertising. “Payday lenders need to be clear about who they are targeting. We see daytime television adverts with glamorous celebrity endorsements, targeted at the unemployed and those on low incomes.”
The FCA also announced at the summit that a consultation will be launched in September to decide its approach to controlling payday lenders.
However Richard Lloyd of Which? said: “Positive noises about tough new rules have come out of the summit … but these must now be backed up with more concrete actions than we’ve seen today.”
DO YOU WANT TO KNOW MORE?
Here’s the full story from The Independent.
Here’s my last post on this issue.
PAYDAY LOANS IN THE FIRING LINE AGAIN
Payday lender Wonga has increased its APR by 1600%! It was already eye-wateringly high; it’s now 5853%, according to The Guardian.
That’s prompted lots of media attention and calls for increased regulation. No surprise there.
Simon Read has campaigned extensively on this. In his recent piece in The Independent , he says we don’t need to ban payday loans, just ensure that anyone taking one out should have chosen to do so, rather than “being flogged a deal they can’t afford.”
How do we ensure that? Anyone contemplating such a risky step should get good and impartial advice about their options; and should take a little time before deciding, instead of being rushed into a decision. However, these loans are by definition emergency loans: the borrower either has, or thinks they have, no alternative and no time.
I would never recommend payday loans; but banning them or capping rates would remove, or at least limit, a finance source that for some borrowers and some situations might be the only alternative. More and better advice is probably the answer.
DO YOU WANT TO KNOW MORE?
See some of my previous blog posts on this thorny subject:
HIGHER EARNERS USE PAYDAY LENDERS TOO
SHOULD PAYDAY LOAN FIRMS “FACE INSTANT CLOSURE”? YES AND NO.
“ACCEPTABLE FACE OF PAYDAY LOANS”?
PAYDAY LOANS IN THE NEWS AGAIN