Is equity release the answer to the cost of living crisis? Or is renting a better option for retirees?

Posted 12th October 2022

Renting for Retirees

The worst cost of living crisis for decades is leading to many people to consider equity release. But is that always the best answer? What if there is an alternative? Have you considered renting for retirees?

There is – Renting with assured lifetime tenancies in retirement.

Data from the Equity Release Council showed homeowners aged 55+ took out 12,485 new equity release plans between April and June this year.

Retirement Rentals in Dorset | My Future Living
Avon Lodge Retirement Community, Bournemouth, Dorset

They report that the number of new plans agreed in this period increased 26% year-on-year when compared with the subdued market last year when pandemic restrictions remained in place.

Equity release allows individuals aged 55 and over to release money from the property they live in without having to make any monthly repayments. There are two types of equity release; Lifetime Mortgages and Home Reversion plans[ii].

The main advantage of equity release is that people can release capital to spend now without having to leave their home.

But the main disadvantage is that equity release does not pay the full market value of the home and people will receive far less than they would selling on the open market[iii].

Equity release won’t suit everyone’s financial circumstances and it’s vital to seek independent financial advice before going down this route and to understand the risks.

There is an alternative for homeowners that may work better for their circumstances and that’s to sell up, downsize and rent in a retirement community enabling retirees to get the full market value for their home, which they might be able to invest or use to enjoy retirement.

Renting an apartment in a retirement development can also reduce utility bills, as there are not so many rooms to heat, and many developments are located near public transport and shops which can reduce fuel costs, with fewer car journeys needed.

Renting has often been perceived as inferior to home ownership, mainly because it was seen as temporary, and people could be asked to leave by their landlord at any time.

This is usually the case if renting privately as shorthold tenancies are the most common form of tenancy agreement.  But one of the main benefits of choosing to rent in a retirement development is that most come with assured ‘lifetime’ tenancies which mean that people can stay for as long as they wish, providing they stick to the tenancy agreement.

For many retirees this is a game changer as they have the same security of tenure as home ownership.

According to recent estimates from Just Group the over 55s are sitting on net property wealth of £4.4 trillion, turbo-charged by a pandemic windfall that added almost £1bn a day to their house prices between March 2020 and June 2022[iv].

Rather than having money sitting in bricks and mortar renting can enable older people to free up this capital.  With bank interest rates rising for the sixth time in a row in August and set to continue rising over the next year, from record lows, savers could once more benefit from decent rates too. 

Renting may not suit everyone, but for some it can be a good financial option and worth considering as an alternative equity release.

Renting in Retirement; A customer testimony

For 78-year- old Fred Lawrence, renting has enabled him to move to a dream Cornish home. Originally from Glasgow, Fred has moved around the country and lived in Cardiff before he settled in the pretty town of Penzance in a retirement development called Trafalgar Court.

Fred says, “Moving house and renting in retirement was a big change for me, but I can honestly say I haven’t looked back and am so happy I finally decided to make the move to the seaside and be closer to my son.” 

Only retired for four years, Fred enjoys the social side of living in the retirement development. He says, “I look forward to our regular Wednesday coffee mornings where we all get a chance to chat and socialise.”

Only retired for four years, Fred enjoys the social side of living in the retirement development. He says, “I look forward to our regular Wednesday coffee mornings where we all get a chance to chat and socialise.”

“The gardens are lovely, so tidy and well looked after. The whole development feels like home and the people couldn’t be friendlier. “

He concludes, “Moving to an unfamiliar place could have been quite daunting but I am really enjoying retirement life and all the benefits of being close to the sea and living in a place where I feel safe and secure.”

View to St. Michael’s Mount from Penzance

[ii] https://www.equityreleasecouncil.com/

[iii] https://www.unbiased.co.uk/life/homes-property/is-equity-release-safe-the-pros-and-cons#What%20are%20the%20risks%20and%20pitfalls%20of%20equity%20release?

[iv] https://www.mortgagestrategy.co.uk/news/over-55s-home-wealth-jumps-to-4-4trn-on-pandemic-gains-just/