People approaching retirement are in a strange position – their houses are worth a fortune, but converting that wealth into secure income has never seemed more risky.
The property boom has made retirees wealthy beyond their dreams. The Council of Mortgage Lenders estimates that Britain's 65-year-olds are living in debt-free assets worth a staggering £460bn.
But stock market crashes, mortgage endowment mis-selling and pension-fund scandals have made the new pensioner generation wary of any kind of investment except property. According to research by Prudential, more than five million Britons believe that they won't be able to afford to retire early. Only 45 per cent of adults expect to have stopped working by the time they are 65.
One in five Britons expect to have to sell their family home to finance their retirement, according to Prudential. About 7 per cent plan to use their homes as collateral to borrow the money for a comfortable retirement.
Retirees who sell up can also choose their new homes with an eye to the increasing aches and pains of age, electing for a bungalow or an apartment close to shops and a GP's surgery. Many move to a mobile home or a lodge park to maximise the amount of money released.
Today's mobile homes are a far cry from the cramped, cold caravans of old. They are made in hi-tech factories and are surprisingly snug. Many are in lovely locations; Stonyfold Lodge Park Homes near Macclesfield, for example, is a group of log cabins set in a wooded valley that is a wildlife haven. A two-bedroom lodge costs about £150,000.
An increasing number or retirees are making a total change in lifestyle, moving from suburban family houses with large gardens into city centre apartments to enjoy the theatres, galleries and restaurants, and to be close to major hospitals.
People who want to use their own homes to fund their retirement have several options, according to James Cotton of London & Country Mortgages.
"It used to be that people aged 65 or over were unable to get a standard mortgage, but times have changed," Cotton says. The amount loaned will depend on income and a medical, he adds.
The other possibilities are equity release and lifetime mortgages. "A lifetime mortgage is one where the interest is rolled up and paid out of your estate when you die," Cotton explains. "The potential problem is that if you live longer than expected this can cost a lot more, leaving little for your children."
Equity release is when you sell all or part of your house in return for a lifetime tenancy. Investing the money carefully can bring a secure income, but equity release needs good advice. "It can be inflexible and costly," Cotton warns.
Any equity release scheme should be endorsed by SHIP, the Safe Home Income Plan (see www.ship-ltd.org).
"Today's retirees are enjoying an incredibly diverse and specialised property sector," says Sarah Woods, editor of the newly published Retirement Property Guide. "The days when the only option was an unimaginative sheltered housing scheme are long gone, thankfully." A growing trend is for "retirement rental" in dedicated retirement complexes. "This is attractive to a growing number of retirees, as it removes the hassles and expenses attached to home ownership, while allowing them to release the equity locked in their property by selling their homes," Woods says.
Retirement rental companies generally offer one- or two-bedroom apartments on assured tenancies with tenure for life. The rent usually includes service charges and will rise in line with inflation.
Retirement rental is particularly popular with people who want to buy a villa abroad to live in for part of the year, while keeping a base in the UK close to family, friends and NHS medical facilities, Woods says.
The Retirement Property Guide, edited by Sarah Woods, is available online for £10 through www.buyinginguides.infoReuse content