Taking the long view: investing in property for retirement


A recent study has revealed that people are more concerned than ever about funding care in later life. Many will turn to property to ensure a reliable safety net in retirement. 

The UK’s population is ageing, and people are living healthier lives for longer. While this is good news for many, a growing number of people are concerned about how they will pay for care as they get older. Savings rates are at historic lows, meaning traditional investment vehicles may not be enough to foot the bill.

Property investment is often viewed as a top alternative or addition to a pension. In the UK, property tends to appreciate in value over time, so the longer you own it the higher your returns. Compared to fluctuating and low savings rates, property is a long-term asset class providing a much higher level of stability.

A new study released by Key Partnerships has revealed the extent of the issue. Around 35% of over-55s are worried about how they will pay for care as they age. This is quite a stark increase from last year when that figure was 21%. Likewise, the number of people who have “no idea” how they will meet care costs has risen. In 2019, 15% said they were in this position, while the figure now is 28% – almost double.

Increasing property wealth

A lot has changed in recent years. Traditionally, savings and investments have been the top source of funding for retirement. But savings rates have been declining, and with the Bank of England base rate now at 0.1%, there is increasing uncertainty around where to put your money.

According to Key’s research, 44% of over-55s used savings and investments to pay for retirement in 2019. This year, though, the figure has fallen to 34%. Likewise, income from a pension was the main source of funding for 40% of over-55s last year, but this year only accounts for 30%.

Property wealth, however, is the one source of retirement funding that has seen a surge. Last year, 19% of over-55s said this was their main nest egg for later life, but this figure has now risen to 29%.

Will Hale, chief executive at Key, said: “With the recent economic turmoil, confidence in savings and pension income has fallen while more people are looking to the value tied up in bricks and mortar to finance care.”

“Getting good advice and understanding what resources you have to draw on is important – and making sure you factor these potential costs into your retirement planning is vital.”

The value of property

Over-65s in the UK currently own around £1.133trn worth of unmortgaged property, according to Key’s research. This is a considerable amount of wealth that can be used towards the cost of funding retirement living.

The level of property wealth varies across the country, with different levels of homeownership as well as house values. The highest level of wealth is in the south-east, with £214.273bn worth of property owned outright. Out of around 1.1 million households in the region, 656,000 people own their homes outright.

This is followed by London, where property prices are of course the highest on average in the UK. After that, the south-west, East Anglia and the north-west have the highest levels of properties owned without a mortgage.

In a case study from Key, one individual documented how she used £110,830 from property to fund her retirement. She had purchased her home for £2,300 in 1954, and it was now worth £750,000. She used equity release to access the money in her property, but there are other options.

For example, investing in buy-to-let brings in a regular monthly income that can be reinvested or saved. The property can of course also be sold once it has risen in value, which will release large amounts of cash.

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Taking the long view: investing in property for retirement


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