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OPINION

Rise of the silver renters

Rise of the silver renters
February 13, 2014
Rise of the silver renters

However, while renting may not be the preferred choice of just the young, it is becoming an attractive option for more and more retired people. Some of these are, of course, lifelong renters already renting a home from a local authority or housing association. According to a recent study of data carried out by Prudential showed that one in every four of retired households in England and Wales currently rent for their home. The same survey showed that last year 42 per cent of retired renters were former home owners, and if you take out the people who were renting before they retired the percentage of home owners turning into renters is even higher.

There are many retired renters who, like Generation Rent, for whom their estrangement from the property ladder isn't necessarily by choice, though - of the retired renters who were previously home owners, around 40 per cent were obliged to sell up in order to pay off debts, with a further 19 per cent needed to raise capital as a result of getting divorced. Meanwhile, around 9 per cent of retired renters opted to become so in order to free up money to live on in retirement.

But there are also a growing number of home-owners reaching retirement that are proactively opting to release the value of their house, in essence by turning it into an investment vehicle to generate sufficient income to pay the rent on a significantly scaled-down property.

The attractions are compelling. Instead of living in and maintaining a house now devoid of any children and probably too big for a couple’s requirements, many are downsizing to somewhere nice in the country where they can let the landlord worry about a leaky roof or replacement central heating boiler. OK, there are issues surrounding security of tenure, especially if the landlord decides to sell up. But the economic case is strong, especially if the retiree owns a property in London and has enjoyed a disproportionately large rise in their home's value over the years. When you consider that someone retiring today could have bought an average London property for £8,000 when they started working in 1970 that's likely to be many people.

So how much will renting cost? Let’s assume that you are moving from an inner city or highly-priced suburban area adjacent to a major town to find your retirement dream of a place in the country. Leaving out the property hot spots both in the big towns and in the countryside, rents in Suffolk, for example, will see you rent a two-bedroom barn conversion, with wood burning stove and all the bells and whistles for £650 a month (which, incidentally, would just about pick you up a one bed studio in most of London's semi-desirable areas).

To fund that level of rent, you'll need to invest around £200,000 at a net 3.9 per cent return - not a tall ask by any means, given the average London property is now valued at £514,704 (according to Rightmove), because the bigger the sum you can invest the lower the return you'll need to cover the rent. And although savings rates are generally still low, you can still find low-risk income elsewhere - a 7-year fixed-rate bond from Secure Trust bank would pay 3.5 per cent a year, for example. Of course, if the amount invested is substantially less, there is a risk that the capital will run out. But if the interest accrued is more than the rent, in nominal terms you or your descendents will retain your original investment, even if it doesn't come in the form of bricks and mortar.

Just as renting can be an attractive and financially viable option for retirees, it's also a welcome development for potential buy-to-let landlords across the country. The buy-to- let market outside major towns is far more fragmented, with many landlords owning just one or two properties - but that in itself presents an opportunity to pick up decent property without paying the premium expected in major commercial centres or student towns. And I’m sure most landlords would prefer a genteel retiree over boisterous student tenants any day. Given that much of the cost of becoming a buy-to-let landlord is in the day to day management of properties, a low-maintenance tenant close to home could be a perfect starting point for an aspiring landlord.

Retirement rental hotspots

Local authorityNumber of retired households rentingProportion of retired households renting (%)
Manchester16,85450
City of Kingston upon Hull11,57147
Norwich6,20645
South Tynesaide7,90542
Newcastle upon Tyne10,90741
Harlow3,44041
Liverpool18,63940
Salford9,33940
Gateshead9,45339
Nottingham9,52838

Source: Prudential analysis of ONS census