I published a post on this topic yesterday, on my site Get Back To The Black. Here’s a LINK.
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.
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.
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.
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.
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.””
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.
A few years ago, when severely in debt, I avoided opening letters from banks and credit card companies. So I couldn’t begin the process of getting out of debt, because I didn’t have a clear picture of my situation.
However, I found that when I bit the bullet and analysed my situation in detail, I felt better! Knowing the facts, no matter how bad, is better than living with a “sword of Damocles” hanging overhead.
If you too have been ignoring those letters, please start opening them now.
Sorting that paperwork
1. Bank statements. Overdraft? How much?
2. Credit card / store card statements
3. Invoices from other creditors
4. Tax correspondence (if self-employed)
5. “Informal” liabilities, e.g. loans from friends / family
When you’ve totalled the debts in categories 1-5, now list the positive side of your “personal balance sheet”, i.e.
6. Estimates of the value of your assets: property; car; cash at bank (if your account’s in the black); shares; insurance policies; money owed to you, including refunds; occupational pension funds [if you’re old enough to consider cashing them in]; anything that could be turned into cash if necessary.
Now prioritise your debts, as follows:
- Priority: “roof-over-your-head” and essential utilities, for example:
- mortgage or rent arrears (you could lose your home)
- other debts secured on your home (same result)
- Council Tax (they can send in the bailiffs)
- gas & electricity (they can cut you off)
- water (though they cannot).
- Non-priority: all other services you need, e.g. car loan; home or mobile phone; credit cards; all other creditors.
Income and expenditure
Now you’ve assessed your liabilities and your assets, you need to evaluate your income and expenditure. It’s a “profit and loss statement” for your life, based on your current spending pattern. Then do another, based on your “survival budget”.
You’ll need a table or spreadsheet: money advisers at your local CAB (Citizens Advice) can provide a form.
Putting it in perspective: “key ratios”
Now analyse your total debt relative to your income; also to your assets. What multiple of your net monthly income is your total debt? What percentage of your net worth? These are what I call your personal “key ratios”.
Now you are in a better position to develop your options and choose the solution that works for you.
A final question: what’s your discretionary income? What’s left after tax and essential expenditure? (Not after your usual expenditure: the answer to that question might be zero, as it was for me)
Whether you think you can repay debts in full or make a partial offer, you’ll need to maximise this “discretionary income”. That’ll involve tough decisions about “needs versus wants”: between what’s essential to your life and what you see as essential to your lifestyle.
The above is an extract from Chapter 5 of my book “Back to the Black: how to become debt-free and stay that way”
Want to know more?
“Back to the Black: how to become debt-free and stay that way”, is now available as a multi-format eBook, to sample (first 20% free) or buy, at Smashwords: http://www.smashwords.com/books/view/22886
It is also in the Kindle store but only the first 10% is free (sorry: Amazon’s rules, not mine). http://www.amazon.com/dp/B004PLMAQM
NEGOTIATING CREDIT DEBTS
In my book “Back to the Black”, I highlight the need to classify your debts in two main groups. Priority debts have to be paid first, of course, because non-payment could cause you to lose your home, or essential services, or even your liberty. I specify which debts come into this category.
The rest are non-priority debts. In my experience, most of these are negotiable if you cannot find a way to pay them in full.
Here’s an extract from Chapter 10 of the book.
While you were doing your “reality check” you will, I hope, have classified your debts into priority and non-priority. Priority debts will mostly, if not totally, consist of any arrears you may have built up in the essential areas of keeping a roof over your head (mortgage or rent), the associated taxes (Council Tax in Great Britain or domestic rates in Northern Ireland) and essential utilities, i.e. gas, electricity and water. (Phone rental has often been classed as a utility but it doesn’t qualify as a priority debt for this purpose, whether it is landline or mobile or broadband). There are also some other categories of arrears that could in the worst case land you in prison for non-payment, so we class them as priority debts too; they include court fines and child maintenance.
Negotiating non-priority debts
On non-priority debts – and most credit debts come into this category – one option is what I call Plan C, i.e. “Negotiate a Deal”.
Plan C involves negotiating not only for time while you put the deal together, but also for a discounted settlement on the non-priority debts. Your creditors, however, may be prepared to freeze further interest payments and late-payment charges, while you are putting your plan together and also while you are in the process of paying off any deal that might be agreed.
It may be that you have some funds available and could make an offer for “full and final settlement”. The word “full” in this context means that the debt is acknowledged by the creditor as being “paid in full” or “satisfied in full”; you are paying a lump sum, though you are paying less than the full amount. The funds you have available might come from friends and family, or maybe from the lump-sum element of cashing in an occupational pension, depending on your age (I was lucky enough – and old enough – to be able to do the latter). More usually, though, you’ll make an offer for payment in instalments.
Co-ordinating the responses
However, if you do decide to go for “full and final settlement,” then bear in mind that you will be negotiating on several fronts and not everyone will agree at the same time; a tricky situation. What you want to avoid at all costs is to have agreed with some creditors, paid them the lump sums agreed, and then to be forced into bankruptcy anyway if other substantial creditors would not agree to a negotiated settlement. That’s why you’ll find that one of my standard letters in “Resources” caters for the situation where you have agreed a deal with one or more creditors but need to delay payment of the sum agreed pending agreement from other creditors. For this particular strategy, therefore – i.e. Plan C offering lump-sum for full and final settlement – my usual warning is louder than ever: take advice.
Some creditors will be reasonable and flexible but others will be intransigent and will play hardball. However, once you have decided that you are going to take action about your debt situation, you should inform your creditors of your situation and ask them for a moratorium on interest and charges.
[the book contains a template for a standard letter to handle this and many other situations.]
Avoid the phone
At the risk of yet more repetition, this is where I say again, “don’t negotiate on the phone; do it in writing.” It is simply not necessary to pick up the phone whenever creditors phone with demands and threats; that is a stress you can do without. In Chapter 2 (“Mind over matter”) I discussed the extra stress of dealing with phone demands; even if you might say that you can handle the stress, there is another very practical reason for doing it this way. If you negotiate on the phone, and if at a later date you find that the creditor’s recall of that conversation is not the same as yours (surprise, surprise), you will have no record of what was said or what was agreed. So let those calls go through to voicemail, but then respond promptly in writing to any messages left. Do it all in writing; it’s more work, of course, but the outcomes – not only for your debt management plan but also for your state of mind – will be better.
Needless to say, keep copies of everything. The fact that you are able to refer to the content and the dates of all previous correspondence is worth its weight in gold. Get that lever-arch file; if you have many creditors you’ll soon fill it. Of course you will have kept copies of your outgoing letters on your computer, but when you go for meetings with your adviser it will be very helpful for that adviser to be able to scan a paper record of all the correspondence, both incoming and outgoing.
“The left hand doesn’t know what the right is doing”
Something I learned is that, while you are negotiating with a creditor, they might simultaneously instruct intermediaries to collect on their behalf. This might be policy, it might not, so be aware of the fact that the left hand might not know what the right is doing within the creditor company. If this happens, simply refer them back to previous correspondence (even sending copies of it) in a polite way. This way you retain, if not the moral high ground, at least the efficient high ground. Don’t assume everyone is super-efficient. Poor communication within a creditor company and between them and their intermediaries can work in your favour, if you are patient.
Talking of left and right hands … and nothing to do with debt: I can’t help repeating what was once said about the jazz pianist Erroll Garner, who at times played right on the centre of the beat with his left hand, while playing way behind the beat with his right hand:
“His left hand knew what his right was doing but it didn’t care.”
Want to know more?
“Back to the Black: how to become debt-free and stay that way”, is now available to sample (first 20% free) or buy as a multi-format ebook, at Smashwords: http://www.smashwords.com/books/view/22886
… and is now also on the Kindle catalogue. (search under the title or under “MacMahon”; sample first 10% free)
A recent news item (Channel 4 News, I think) flagged up a potentially alarming problem that’s been caused by the recession. (Yes, that’ll be the recession that the experts say is now officially over. Try telling that to someone who has lost their job.)
What’s the problem? According to a report by the charity Shelter, there’s been a large increase – possibly 50% in a year – in the number of people using credit cards to pay their mortgage or rent.
Does this affect owner-occupiers? Or tenants? Or both?
According to the BBC website, the Council of Mortgage Lenders (CML) suggests that the problem has been sensationalised by the media. That may be true. It would not be the first time. I should point out the obvious, however: the CML’s concern is only for mortgages. What Shelter describes may well be more of a problem for tenants than for homeowners. Mortgage rates are exceptionally low at present, so it’s less likely that an owner-occupier will have difficulty meeting housing costs, other things being equal. Also mortgage payments are normally taken on a direct debit, the CML says.
The reduction in housing costs caused by low mortgage rates has not yet been mirrored in reduced rents (why not?? Logic tells me it should be). Therefore, other things again being equal (which they never are) a tenant is more likely to be tempted to solve a short-term cash-flow problem by paying the rent with a credit card.
Is the story true?
“In the current climate”, I would not be surprised if there has been an increase in the number using cards. But has the increase really been 50% in a year? That’s massive. What they say, if you read the various reports, is that it’s gone from 4% to 6% and that is indeed an increase of 50%.
Firstly, you’d have to ask how big was the sample; obviously they didn’t interview everyone in the country (well, they didn’t ask me, anyway). And secondly, here’s a bit of a giveaway. Last year’s survey calculated the number of households, rather than individuals, that fell into this category. However, “the figure for households has not been calculated this year”, according to the report. So are we comparing apples with oranges, to make a point?
So is it safe to pay with a credit card?
Back to the question at the top of this post; is it safe to use a credit card to pay your rent or (less likely) your mortgage? The answer is a cautious yes, but only under certain circumstances. Credit cards do not have the astronomically high interest rates of payday loans, but the principle is the same. IF there is no alternative, and IF you are 100% sure you can pay off the card in full before the interest kicks in (you have 4-6 weeks to do that) then fine. If not, then as I have said many times before … get help from one of the debt advice agencies (for example Citizens Advice, or Consumer Credit Counselling Services, or National Debtline) and put together a plan. If you don’t, you could find yourself on a slippery slope.
I’ll be following up this story. “Watch this space”, as the saying goes.
WANT TO KNOW MORE?
Here’s a piece on the website of Shelter, who produced the original report:
And here’s an item about the story on the BBC website:
My book “Back to the Black: how to become debt-free and stay that way” is now available to sample or buy, as a multi-format e-book, at: http://www.smashwords.com/books/view/22886