Rent or equity release?

If you have been a contentedly mortgage-free homeowner for many years, you may not relish the prospect of renting a home instead. After all, renting is really for youngsters, isn’t it?

But renting in later life can make sound financial and lifestyle sense, as Brian and Irene Nixon discovered.

When Brian, 70, retired from his managerial career with the International Wool Secretariat, he sat down and did some meticulous financial projections. He soon realised that if he sold his valuable house in Ilkley, Yorkshire, and then rented a home, he and Irene would have no financial worries for the next 25 years at least. Two years on, he reckons renting can be highly recommended. He says: “Renting gives us more money to spend plus we are not responsible for the upkeep of the property. And if we have to move to a nursing home in later life, we can do so instantly without having to wait to sell first. Our former home was quite old and needed money spending on it, but our four-bedroom rented house is only three years old and in perfect condition.

“For me, renting makes more sense than commercial equity release as I don’t owe anybody anything and I have all the house money - £350,000 – invested with Scottish Widows. My pension gives us enough to live on and pay the rent, and the nice lump of capital is just to spend. We also have no more worries about whether the value of our house is going up or down.

“We had 50 or 60 suitable properties to choose from just in our area, and nowadays it is easy to find something nice for your needs. Also, most landlords prefer older people as we make better tenants. As we have been homeowners ourselves, we look after the property as we would our own and we are not going to take drugs or have wild parties.”

One serious drawback of renting is that your landlord may suddenly want to sell, leaving you potentially homeless. Just three months after the Nixons moved into their new home, their landlord told them he wanted to put the property on the market. Under normal circumstances they would have had to leave as most buyers demand vacant possession. But here they were lucky as their landlord sold the house through Investment Property Exchange (IPEX) a new scheme whereby buy-to-let properties are sold with tenants in situ. “IPEX is a marvellous scheme that ensures continuity regardless of the owner,” says Brian. “Our house is now owned by a property company, and thanks to IPEX, we have complete security of tenure.”

Brian and Irene Nixon rent an ordinary house but it is also possible to rent a retirement property. In 1990, Peter Girling, a former director of retirement home specialists McCarthy and Stone, set up Girlings Retirement Options as the ‘ultimate equity release’. Girlings buys up retirement housing to rent out in the private sector to people who previously owned their homes.

Marketing manager Caroline Hull explains: “We create an assured tenancy which gives complete security of tenure for as long as the occupant lives. Our tenants pay the full market rent capped in line with inflation, plus the service charges. “Our tenants have their pension plus a nice lump sum in the bank from the sale of their house, which means they can enjoy a financially stable retirement without remortgaging or getting back in debt,” Caroline adds.

Girlings, which works in partnership with Norwich Union, currently rents out around 10,000 units. Founder Peter Girling says: “We take up financial, medical and personal references and personally interview all prospective tenants. We decided to concentrate on retirement homes because they have everything older people may want such as a communal sitting room, specially-adapted bathrooms, panic buttons and Careline facilities.”

Renting a retirement home can be a sound decision as these properties are not always easy to sell. They can only be sold to other age-qualifying buyers, and there is usually a premium to pay back to the freeholder.

You can also, if you like, sell your house and then rent that same house back. There are now several companies offering this service, aimed mainly at older homeowners wanting to free up cash in the simplest possible way. This is emphatically not equity release as you no longer own your own home. And although you will rent at the current market rate, you will not get the full market price for your home. One such company, Fullhouse Developments, Ltd, will buy your house for between 70% and 85% of its current market value.

If the idea of renting appeals, you first need to do some very detailed financial calculations and forecasts, advises Brian Nixon. “I worked everything out very carefully on a spreadsheet before it became clear that I would be better off not being a homeowner any more.”

Girlings Retirement Options: 0845 758 356

Fullhouse Developments, Ltd: 0800 234 6586
Brian Nixon will prepare a tailor-made spreadsheet for readers.
Enquiries: 01943 608525/07984 338462
email .(JavaScript must be enabled to view this email address)

Investment Property Exchange (IPEX): 0870 853 2269.

Saga Magazine