How to use your property to fund your retirement

Lee Bell

by , Freelance Journalist

The Metro, The Sun, Stuff Magazine, T3.

22 May 2024 /  

How to use your property to fund your retirement

Whether it’s through selling, downsizing or equity release, you might be planning to use your property alongside your pension to help fund your retirement. But what do these terms really mean, and how could you use your home as a part of your strategy to boost your retirement funds?

Selling and downsizing

If you’re a parent approaching retirement and your kids have flown the nest, or you’ve separated from a partner, your home might feel too big by the time it comes to give up work. Moving to a smaller home not only helps in releasing funds, but could also significantly reduce your daily living costs. In a smaller home your utility bills and other household expenses will likely decrease, freeing up more disposable income.

If you’re still paying off a mortgage as you approach retirement, downsizing can offer a financial breather. Selling your home could enable you to pay off your remaining mortgage and buy a smaller property outright. With no monthly mortgage payments, your outgoings could decrease significantly, freeing up more of your pension pot to do the things you want.

Choosing to relocate to a more affordable area could further stretch your retirement funds. However, relocating does come with potential downsides. Moving away from friends, family and familiar surroundings could come with emotional and social costs. So it’s important to consider whether the trade-offs are worth it.

While selling your home can provide a lump sum, you’ll need to consider the other costs involved with buying and selling property. It’s a good idea to calculate costs, such as solicitor fees and stamp duty beforehand to get a realistic picture of how much you’ll gain from the sale.\

Equity release

Equity release is a way for homeowners over 55, to get money from the value of their home without having to move out. There are two main types.

  • Lifetime mortgages - you take a loan against your home but still own it. The loan and any interest can be paid back as you go. Or, when you pass away or move into long-term care, the property will be sold and the money from the sale is then used to pay off the loan.
  • Home reversion - you sell part or all of your home while you’re still living in it, in exchange for a lump sum or regular payment. However, it’s sold to the lender below market value - usually between 20% and 60%. The new owner can’t sell it while you’re still living there.

Lifetime mortgages vs home reversion - what’s best for me?

The main difference between the two comes down to property ownership. With a lifetime mortgage, you still own your home, giving you the option to leave it to your loved ones. While home reversion involves selling part of your property.

The decision between a lifetime mortgage and home reversion will be personal. You’ll need to take into account your personal circumstances such as relationship, family. Plus, whether you plan to leave anything behind as an inheritance when you pass away. Read more about the pros and cons of equity release.

Relocating and renting out

Selling your property in the UK and moving abroad where the cost of living is lower could stretch your retirement savings. You might even consider keeping your property in the UK and renting it out to cover your living expenses. That way you could still leave your property as an inheritance to your family or loved ones when you pass away. However, managing a rental property, especially from abroad, can be a hassle you might not want in later life.

There are many options for using your property in retirement, all with their benefits and considerations. While one approach may work for some, it won’t be suitable for others. So make sure you consider your personal circumstances as well as the associated benefits and risks. If you’re interested in learning more, listen to episode four of The Pension Confident Podcast. In this episode, our expert guests discuss the pros and cons of using your property to fund your retirement. You can listen or read the full transcript.

Lee Bell is a freelance Journalist and Copywriter specialising in B2B/consumer technology, specifically AI, health and lifestyle. Sponsored by the Journalism Diversity Fund in 2009 to complete an NCTJ diploma, Lee has over 15 years of writing and editing experience. You’ll find his words in the likes of The Metro, The Sun, Men’s Fitness, Stuff Magazine and T3.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

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