Renting to retirement: Is it feasible?

Getty Images

Homeownership can be a thing of beauty. Just as you don a pair of fur-lined slippers and spend more time on the golf course, you find that you have paid off your mortgage.

For the rest of your life, the housing is effectively free.

But this utopian model is becoming the exception. High house prices mean that we are borrowing more for longer.

And more significantly, the UK is slowly ceasing to become a nation of owners.

Over the next 15 years, the number of people who rent their home from a private landlord is expected to double to more than nine million dollars.

So, how is it possible to rent it out when you are no longer earning a salary?”Black hole”

At the age of 52 years, Simon Marley – who lives in new York – is still quite far from retirement.

But after having sold his house in order to strengthen its pension fund, it agrees that it will have no other choice than to continue to rent it out when he does retire.

A chartered accountant, he calculated that, out of 1, 000 pounds a month, he expects to get his pension, up to £700 might have to go on rent.

“It’s going to be an incredibly large burden,” he said.

“On the current figures of the rental will be about 70% of my monthly income, which is a very large volume.”

To pay the rent, he will wait until he gets a state pension, at the age of 68 years, or else do part-time work.

He advises other people with their retirement planning earlier than it was.

“People are not responding to their pension benefits early enough or proactively enough. I can’t stress how important it is to address sooner rather than later,” he said.

“Don’t leave it until your 50s before you realize that you have a huge black hole that you cannot fill.””Not Of Eastbourne’

Simon’s case is not atypical.

In a period of 15 years in the UK, retirees who do not have their own home will be paying an average 42% of their income in rent, according to research by the economic Development for Scottish Widows.

But retirees will face different pressures in different parts of the country, with some areas proving to be much less expensive than others. (See chart below)

The projections suggest that the rent in London may become untenable for all but the rich.

While retirees in the capital currently spend 66% of their income on rent, they could spend as much as 80 per cent by 2032.

The next most expensive area for retirees, the tenants will be the East of England, where the figure could be 45%.

Just behind it is the South-East, where retirees can expect to spend 39% of their pension income on rent.

On the other hand, those who are in the country of Wales is going to spend 24% of their pension on accommodation, while those in the northeast will spend 25%.

In order of feasibility depends a lot on the cost of local rents, and if you can be prepared to move to a less expensive area.

If you are going to move, think Newcastle, Swansea or Glasgow, said the report, not Eastbourne or Norfolk.Savings

The proportion of pensioners income in rent is likely to accelerate over the next 15 years, according to the study.

At the time of 32% of the average pensioner household’s monthly income of £2,374 is spent on rent.

By 2023, the average income will rise to £3,706 – but the rents will increase more rapidly, or 42% of income. (See chart below)
@-webkit-keyframes spinnerRotate
{
from{-webkit-transform:rotate(0deg);}
to{-webkit-transform:rotate(360deg);}
}
@-moz-keyframes spinnerRotate
{
from{-moz-transform:rotate(0deg);}
to{-moz-transform:rotate(360deg);}
}
@-ms-keyframes spinnerRotate
{
from{-ms-transform:rotate(0deg);}
to{-ms-transform:rotate(360deg);}
}
.bbc-news-visual-journalism-loading-spinner {
display: block;
margin: 10px auto;
width: 33px;
height: 33px;
max-width: 33px;

-webkit-animation-name: spinnerRotate;
-webkit-animation-duration: 5s;
-webkit-animation-iteration-count: infinite;
-webkit-animation-timing-function: linear;
-moz-animation-name: spinnerRotate;
-moz-animation-duration: 5s;
-moz-animation-iteration-count: infinite;
-moz-animation-timing-function: linear;
-ms-animation-name: spinnerRotate;
-ms-animation-duration: 5s;
-ms-animation-iteration-count: infinite;
-ms-animation-timing-function: linear;

background-image: url(‘data:image/gif;base64,R0lGODlhIQAhALMAAMPDw/Dw8BAQECAgIICAgHBwcKCgoDAwMFBQULCwsGBgYEBAQODg4JCQkAAAAP///yH/C1hNUCBEYXRhWE1QPD94cGFja2V0IGJlZ2luPSLvu78iIGlkPSJXNU0wTXBDZWhpSHpyZVN6TlRjemtjOWQiPz4gPHg6eG1wbWV0YSB4bWxuczp4PSJhZG9iZTpuczptZXRhLyIgeDp4bXB0az0iQWRvYmUgWE1QIENvcmUgNS4zLWMwMTEgNjYuMTQ1NjYxLCAyMDEyLzAyLzA2LTE0OjU2OjI3ICAgICAgICAiPiA8cmRmOlJERiB4bWxuczpyZGY9Imh0dHA6Ly93d3cudzMub3JnLzE5OTkvMDIvMjItcmRmLXN5bnRheC1ucyMiPiA8cmRmOkRlc2NyaXB0aW9uIHJkZjphYm91dD0iIiB4bWxuczp4bXA9Imh0dHA6Ly9ucy5hZG9iZS5jb20veGFwLzEuMC8iIHhtbG5zOnhtcE1NPSJodHRwOi8vbnMuYWRvYmUuY29tL3hhcC8xLjAvbW0vIiB4bWxuczpzdFJlZj0iaHR0cDovL25zLmFkb2JlLmNvbS94YXAvMS4wL3NUeXBlL1Jlc291cmNlUmVmIyIgeG1wOkNyZWF0b3JUb29sPSJBZG9iZSBQaG90b3Nob3AgQ1M2IChNYWNpbnRvc2gpIiB4bXBNTTpJbnN0YW5jZUlEPSJ4bXAuaWlkOjFFOTcwNTgzMDlCMjExRTQ4MDU3RThBRkIxMjYyOEYyIiB4bXBNTTpEb2N1bWVudElEPSJ4bXAuZGlkOjFFOTcwNTg0MDlCMjExRTQ4MDU3RThBRkIxMjYyOEYyIj4gPHhtcE1NOkRlcml2ZWRGcm9tIHN0UmVmOmluc3RhbmNlSUQ9InhtcC5paWQ6MUU5NzA1ODEwOUIyMTFFNDgwNTdFOEFGQjEyNjI4RjIiIHN0UmVmOmRvY3VtZW50SUQ9InhtcC5kaWQ6MUU5NzA1ODIwOUIyMTFFNDgwNTdFOEFGQjEyNjI4RjIiLz4gPC9yZGY6RGVzY3JpcHRpb24+IDwvcmRmOlJERj4gPC94OnhtcG1ldGE+IDw/eHBhY2tldCBlbmQ9InIiPz4B//79/Pv6+fj39vX08/Lx8O/u7ezr6uno5+bl5OPi4eDf3t3c29rZ2NfW1dTT0tHQz87NzMvKycjHxsXEw8LBwL++vby7urm4t7a1tLOysbCvrq2sq6qpqKempaSjoqGgn56dnJuamZiXlpWUk5KRkI+OjYyLiomIh4aFhIOCgYB/fn18e3p5eHd2dXRzcnFwb25tbGtqaWhnZmVkY2JhYF9eXVxbWllYV1ZVVFNSUVBPTk1MS0pJSEdGRURDQkFAPz49PDs6OTg3NjU0MzIxMC8uLSwrKikoJyYlJCMiISAfHh0cGxoZGBcWFRQTEhEQDw4NDAsKCQgHBgUEAwIBAAAh+QQAAAAAACwAAAAAIQAhAAAE0vDJSScguOrNE3IgyI0bMIQoqUoF6q5jcLigsCzwJrtCAeSjDwoRAI4aLoNxxBCglEtJoFGUKFCEqCRxKkidoIP20aoVDaifFvB8XEGDseQEUjzoDq+87IijEnIPCSlpgWwhDIVyhyKKY4wOD3+BgyF3IXpjfHFvfYF4dmghalGQSgFgDmJaM2ZWWFEEKHYSTW1AojUMFEi3K7kgDRpCIUQkAcQgCDqtIT2kFgWpYVUaOzQ2NwvTIQfVHHw04iCZKibjNAPQMB7oDgiAixjzBOsbEQA7’);
}

require([“jquery-1”, “istats-1”], function ($, istats) {
$(function () {

var monitorScrolling = function (ev) {
if (isElementInViewport(document.getElementById(‘ns_chart_incomevrents’))) {
istats.log(
“idt-content”,
“chart-entered-view”,
{
“project” : “incomevrents”,
“page” : window.location.href
});
window.clearInterval(intervalID);
}
};

var isElementInViewport = function (el) {
var rect = el.getBoundingClientRect();

return (
rect.top>= 0 &&
rect.left>= 0 &&
rect.bottom

require.config({
paths: {
‘pym’: ‘//static.bbc.co.uk/indepthtoolkit/13.3.0.278/js/vendor/bower/pym.js/dist/pym.min’,
‘pymManager’: ‘//static.bbc.co.uk/indepthtoolkit/13.3.0.278/js/vendor/bower/news-vj-iframe-wrapper/js/pym-manager’
},
});

require([‘vjCutsTheMustard’, ‘pymManager’], function (cutsTheMustard, pymManager) {
if (cutsTheMustard) {
pymManager.init(‘5a23c1d356988’, ‘//www.bbc.co.uk/indepthtoolkit/charts/incomevrents?iframe=true&iframeUID=5a23c1d356988’, ‘pym’, ‘5a23c1d356988-core-content’);
}
});

All of this suggests that those planning to rent in retirement should consider saving more when they are at work.

Or work longer.

Thus, while the pension companies and insurance companies are fond of telling us to save more – in order to boost their own profits, they probably have a point.

Scottish Widows believes that the average tenant planning to retire in 15 years, needs to save £525 a month more than they are saving at the present time.

Or work for an additional five years.

The option is a big question.

“The number of people to rent in retirement is set to treble over the next 15 years,” says Robert Cochran, pensions expert at Scottish Widows.

“But, alarmingly few people think the way they were going to cover the increase in the cost of a lease agreement when they stop working.”Retirement calculators

Getty Images

Legal retirement age calculator DWP

How much will I get from a state pension? DWP

Combined state, workplace, and DC calculator, Standard Life

How much can I earn DC pot? The Money Advice ServiceTenant security

If the country has built more homes and the government of the last target is 300,000 per year – it may be that these projections prove to be inaccurate.

In theory, the increase of the housing supply is expected to lower the rents.

However, a lot of people are very happy in the accommodation after retirement can be because they want to provide housing for their children.

But others, including Simon Marley – worry about the safety of renting as they get older.

“The owners have the upper hand on a lot of the time. If someone wants to you with one month’s notice, you are finished. There is therefore a sword of Damocles hanging over you all the time,” he said.

Yet, since Friday the 1st of December, those taking tenancies in Scotland have been given extra protection.

Under the Law on the Private Housing (Scotland), tenants will be able to choose to stay in a home as long as they want, unless they are eligible for eviction on one of 18 grounds.

In last month’s budget, the government announced that a consultation is to take place on similar rules for England. There may be changes in the country of Wales.

While this may bring a little comfort to those who are planning to rent after they stop working, many retirees may need to take a very hard look at how they will afford it.