Londoners’ over reliance on their homes in retirement

The first wave of IFF Research’s ‘Retirement Choices’ syndicated research uncovered an overconfidence particular to London retirees, rooted in their belief that their property can solve their needs in retirement.

It’s no secret that London’s residential property market has exploded over the past two decades, and is now at the stage where owning their own home is an unobtainable dream for a large proportion of the population. Large increases in property prices are obviously no cause for celebration for those aiming to secure a property without currently owning one, as income is diverted into rental payments or the high cost of living in the capital, rather than being funneled towards a deposit on a property.

The winners of this situation are those that managed to buy a London property over the last few decades, when getting onto the housing ladder was a relatively achievable goal without a substantial level of financial support. This is the position for many of those now in their fifties and sixties, and in the lead up to retiring over the next decade or so.

Most of those interviewed within the ‘Retirement Choices’ groups have now paid off their mortgages, and have seen a substantial increase in the value of their property. They also have substantial DC pension savings (£50k+) and felt that, in one way or another, their current home (and other property) was a key component of their retirement plans for a number of different reasons.

1. Overall financial security. Owning your own home is felt to provide a solid foundation and a degree of security, even if your retirement income is not particularly high. Not having to pay a high monthly mortgage was critical to respondent’s ongoing financial health.

2. Buy to let income. Even if respondents did not have a second property to rent out themselves, this was almost universally acknowledged as the best way to secure an ongoing income in retirement. We will have to monitor whether upcoming regulatory changes impact its popularity in the next wave.

3. Downsizing. Not equity release, but selling the current home and either moving to a smaller property, or moving to a more inexpensive area. However, on reflection, many felt resistance to moving away from their current situation as they did not want to be without their nearby friends and family.

4. Renting out a room for income. Some have been using AirBnB and other room rental sites with varying degrees of success. Those that are positive about renting out a room have found it brings in money, and is an interesting way for them to meet new people.

5. Providing a legacy for children / grandchildren. As well as providing themselves with security, many felt their property was their greatest asset to be able to pass on to their children. There was a clear recognition that whilst they had been fortunate to take advantage of the property market surge, their children and grandchildren will be less likely to secure a property without their assistance.

6. Any healthcare or elderly care support they need. Whilst there is a clear emotional resistance to engaging with the concept that they may require care in old age, when pressed most felt they would need to use the equity in their property to pay for any associated fees.

Within the research sessions, most initially felt they would be financially secure in retirement, and that their property would support them in a number of ways. However, on probing it became apparently that they are expecting their property to possibly do too much, and the discussions themselves became increasingly tense as respondents recognised plans for their property may not be as credible as they had hoped.

The reassurance of a property in London appears to rob many of the need to try and proactively plan for their retirement, and to be more engaged with thinking about how their retirement with logistically work. Those is London are not recognizing that their asset does not offer the security they need, and that they be being too optimistic that their property will be able to cover all their financial needs in retirement.

The next wave of our ‘Retirement Choices’ research programme will improve our understanding of the home’s place within retirement planning across the nation, with upcoming groups being held in the midlands.