5 min read

Could investing in a first home set you up for retirement?

Brits are notoriously obsessed with houses. Upsizing, downsizing, buying, selling, getting a foot on the ladder – for many people, it’s a favourite topic of conversation.

Elderly couple sat on the doorstep of their home, smiling

And it’s not hard to see why. House price growth in the UK means that, for many homeowners, their property has the ability to increase their wealth significantly over the course of their working life as well as providing a valuable source of funding for their retirement.

Houses continue to rise in value

According to most recent Government statistics, the average UK home is now worth a hefty £226,071 – up 5.1% from just a year ago. The typical detached property is worth £340,886 and the average flat £203,601.

This is a long-term upward trend in the UK. Historical data from Nationwide Building Society shows that the average house price a decade ago was £183,959 and 20 years ago was £61,830.

House prices do, of course, experience dips and there is no way to guarantee the value of a home increasing. But, over the past few decades, house price increases have frequently been in their double digits. In 2003 they were up an incredible 25.8% on the year before*.

It’s no wonder then that, for UK adults, getting a first foot on the housing ladder is incredibly important. This is why financial products like the Lifetime ISA could be a huge help for first-time buyers struggling with the rise in house prices.

How investing in your first home can fund retirement:

There are various reasons why owning their own home appeals to people, one of which is the future benefits it may bring. Investing in a home which increases in value can provide you with a source of wealth which can be used to help fund retirement.

Few people might imagine that when they buy their first home that it could end up funding their retirement. But even if your property does not increase in value you can still tap into the equity you have built up over the years as you have paid off your mortgage. ‘My house is my pension plan’ is a common refrain among homeowners, but many may not know how exactly to make their house get them through retirement.

Making your home work for you in retirement

There are actually several ways this can be achieved. Perhaps most obvious is downsizing to a smaller property to free up some of the equity you have in your home. Those who moved from the average detached house to the average flat could free up more than £137,000, which could be used towards your retirement or to buy an annuity.

Other owners might choose to buy a second property and become a landlord. Enjoying the monthly rental income which can be achieved. But bear in mind the disadvantages of this situation too, the legal responsibilities, financial outlay, having to deal with property maintenance and emergencies such as burst pipes and broken boilers, to name just a few.

A further option is equity release, which allows you to borrow a lump-sum or regular amounts against the value of your home (depending on the provider’s products), but to remain living there.

Also known as lifetime mortgages, with OneFamily these arrangements are available to homeowners aged 55 and over. Borrowers have the option to pay monthly or ad hoc interest payments or waiting until the end of the term of the agreement. Any money owed at the end of the term is paid using money generated from the sale of the home either after you die, enter long term care, or move elsewhere, and borrowers never owe more than the value of their home.

Written by Holly Black – Financial Journalist

*Source: Nationwide House Price Index data https://www.nationwide.co.uk/about/house-price-index/download-data

Note: Whilst we take care to ensure Talking Finance content is accurate at the time of publication, individual circumstances can differ so please don’t rely on it when making financial decisions. The opinions expressed within this blog are those of the author and not necessarily of OneFamily.