Some say falling house prices are crashing through retirement plans, and having a great impact on retirement incomes, especially if the pension annuity is too low. The case of an elderly couple wanting to trade down is typical of the problems people are facing at the moment. Consider this property and scenario:
The four bedrooms, stone fireplaces, staircase and huge mature garden would make a beautiful Georgian property a wonderful family home – for someone with the cash to renovate it. But the elderly owners now find it too large and expensive to run. They want to trade down and are probably hoping to put some cash in the bank. But the situation is dire because of current market conditions.
The house went on the market at over £900,000 a year ago but didn’t find a buyer. The couple have now changed agents and it is on the market for informal tenders above £550,000. An obvious buyer would be a builder who could carry out the undoubtedly expensive renovation and sell it on, not a family buyer. However, the house is large and expensive to heat.
More and more we are seeing similar cases in which people are depending on property for their retirement income. Where the value of their property has fallen there is often very little they can do except sit it out. Many older people will have owned their homes for 20 years or more, so a good profits are likely. High heating costs are likely to affect the price of otherwise very desirable large family homes, the sort that many people coming up to retirement want to sell.
It is true to say that relying on property to fund retirement is a risky strategy. There is no real alternative to a pension pot and a pension annuity. If you are expecting to trade down there often isn’t much left after you have bought a new property and if you are tied into selling at retirement or a specific time, you can get caught out by the market.
The problem is that it is difficult to persuade people that they need diversified investments if they are not to be caught out by a downturn just as they want to retire. Some are having to defer retirement.
The message remains the same – and it has not changed because of the downturn in house prices – you need an appropriate spread of assets across all sectors.
