For how much longer can Residential Properties be classed as just standalone assets, rather than an Investment for Later Life Retirement Planning?
For many years your home has been classed as an asset that you purchased while you worked and hopefully had paid for before you retired. This process was normally financed by a Residential Mortgage over 25 years.
Now, depending on how often you move property in your working life, your home is normally paid for between the ages of 55 to 65. However, over the last 5 years we have seen a shift away from this scenario. Now mortgages, more and more, are going past peoples state retirement ages and unfortunately a lot of these are Interest Only Mortgages where no investment vehicle is in place to pay the Interest Only Mortgage off.
In the above scenario people have the choice to downsize, consider a Lifetime Mortgage or if their income in retirement is good enough, consider a Retirement Interest Only Mortgage.
But what does this mean for people in the above position? If you choose downsizing, this could obviously mean leaving a family home that you have developed over the years, or leaving the area you have chosen to raise your family and would preferably wish to live. Then moving to a smaller property, in an area you would not have ideally chosen to live where the houses are more affordable to your new budget.
In the past certain groups of people retired with final salary pensions from an employer where they worked most of their lives, which were sound foundations to people's pensions in Later Life Planning when added to their State Pensions.
However, over the last 10 to 15 years these pension schemes have stopped and nearly all pension schemes today are Money Purchase Schemes and, depending on how you have been able to fund them over the years, and how the stock markets have performed for you, will dictate what level of income you will then have in retirement.
There are many articles on how people are not suitably funding their Money Purchase Pension Schemes and how they will have considerable shortfall in their Retirement income.
This has a knock on effect for Retirement Interest Only Mortgages, because if a provider after reviewing people circumstances do not feel they will have sufficient income in retirement, then these products are not available to them.
This then brings in the Lifetime Mortgage product where no affordability comes into the process. However, this will have an impact on your estate and possible future inheritances. A Lifetime Mortgage could possibly pay off an outstanding mortgage which goes into your retirement years, depending on the loan to value owed not being more than a maximum 55%.
Equally worrying though, is the fact that even if you have no mortgage at your chosen retirement age your income from your Pension Planning could, and is very likely, to give you a shortfall in your income requirements in retirement. So again, your home will become an investment that helps support your future income requirements in retirement.
So in conclusion, for future generations, the family home before retirement will now become a fundamental part of their Later Life Retirement Portfolio, with their Money Purchase Pension Scheme, their State Pension and any other Savings or Investments they may have accrued before their chosen Retirement age.
If you would like to get some balanced advice on your own circumstances, from a firm that promotes giving the right advice, every time, and has access to the whole of the market, please don’t hesitate to give Viva Retirement Solutions a call on 0800 046 9776.