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Nic Cicutti: Banking on property windfall is misguided

Nic Cicutti

A few months ago, I wrote about my experience of applying for an increased mortgage in order to fund some additional building work to our home.

One of the by-products of the borrowing process involved a property valuation to determine whether our home was worth lending the additional sum against. Happily, the valuation came in at the top end of the amount we told the lender our home is currently worth. The mortgage has now gone through.

More importantly, the valuation also effectively told us that if, in years to come, we need to downsize and move somewhere more physically manageable in our village, with one or two less bedrooms perhaps, we will have a tidy sum left over to dispose of as we wish.

Given that we have no children, the most likely purpose of that money would be to provide additional income in our old age. For us, our property may literally become part of our pension – if we need it to be.

I was thinking of this as I read last week of FCA chief executive Andrew Bailey’s comments to the effect that consumers might be able use their homes to fund retirement income, rather than saving for both property and a pension at the same time.

According to Money Marketing, Bailey’s speech at a retirement conference in Scotland was based on a theoretical model of so-called “lifetime saving”, where the majority of us tend to concentrate the money we set aside on two distinct areas: our home and our retirement.

Given the increase in the cost of both, requiring longer and longer mortgage repayment periods and bigger proportions of our current incomes to fund our retirement, the focus for many is on the here and now: paying for the home we live in at the expense of our future pension.

Bailey stated he was opposed to savers putting a greater proportion of their assets into property, for example, second homes or buy-to-let. However, he also suggested that when the time comes it might be possible for some people to make use of some of the equity in their own homes to boost their retirement income.

His comments certainly chime with consumers’ own expectations. Surveys have repeatedly shown that borrowers expect to use the equity in their homes to help fund their pensions. The problem with those views is, with few exceptions such as myself, they are hopelessly optimistic – and potentially dangerous.

People may think of it as such, but property is not a pension. You are rarely able to sell it and simply keep the money. The only way to do so is if you downsize and keep the profit, but the numbers of those with lots of cash to spare after selling up is very small.

When I last researched the subject, I found that one in three house sales does indeed involve people selling up to move to a smaller property.

However, some 54 per cent of those who downsize do so mainly to get rid of their mortgage, not because they want equity from their property as cash in hand. A further 15 per cent were doing so because they had split up from their partners, suggesting there was not likely to be much cash to spare there.

About 20 per cent of those selling up in order to move into smaller properties are retirees over 60. But many of those are looking to clear their mortgages, hardly surprising, given that average incomes after retirement tend to plummet.

Only 12 per cent of those who bought a smaller property (4 per cent of the total number of buyers) actually took the cash. And even then they often “recycled” it, giving their children a leg up the property ladder instead.

In other words, property is not the cash-generative machine many people think it might be, all the more so as the amount of money likely to be available for some of the equity release plans currently on the market is likely to be small.

Aviva’s website, which has a calculator allowing consumers to estimate how much equity they might be able to release from their property, told me that for a couple whose youngest applicant was aged 65 would be able to borrow about 31 per cent against the unencumbered value of their property. Adding an inheritance guarantee would reduce that amount further.

Do not get me wrong, for a minority of badly-off borrowers the amounts involved do matter: an extra £50 or £100 a week is not to be sneezed at. But it is certainly not the bonanza that many people expect it to be.

More importantly, not only are these sums likely to be available to a small minority of homeowners who are able to downsize with a decent pot of money left over, they will also be at the expense of intergenerational property purchases by their children.

My worry is while Bailey’s comments do not really address the real problem of inadequate retirement incomes, they will raise expectations while opening the floodgates to a repeat of the Fisher Prew Smith equity release misselling scandal of the late 1980s. Hundreds of thousands of homeowners may, quite literally, be a lot poorer for his words.

Nic Cicutti can be contacted at



FCA chief: Savers can use homes to fund their pension

FCA chief executive Andrew Bailey says consumers can use their homes flexibly to fund retirement income, rather than saving for both property and a pension at the same time. Speaking today at the Pensions and Savings Symposium in Gleneagles, Bailey warned of the challenges facing retirement savers in the current low-interest rate, low growth environment. […]


Nic Cicutti: The pensions boycott is well founded

Two friends and their kids came to stay with us this bank holiday weekend. Amid the laughter, good food and even better wine, my friends let drop that they have several tens of thousands of pounds’ worth of modern art lying under their bed. Why under the bed, I asked? Is art not something that […]


Hard numbers and harsh truths in property vs pensions debate

The provocative comments from Bank of England chief economist Andy Haldane that property trumps pensions when it comes to retirement planning have reignited an age-old debate. The comments come off the back of worrying research from Citizens Advice that suggests large numbers of consumers are eschewing pensions in favour of bank accounts, and after Money Marketing […]


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There are 10 comments at the moment, we would love to hear your opinion too.

  1. Good points Nic – the premise of ‘downsizing’ is invariably kicking the issue down the road and is perhaps the least diverse approach one could have, financial planning wise.

    We are, however, in a world where lies are passed of as truths, big financial decisions often fall outside of mainstream financial regulation and where cynicism, misinformation and mistrust leads to bad decisions.

    It’s sad, but recent comments from the BoE have simply added to the aforementioned issues we are already battling against.

  2. Nic

    You are so right. Many was the time that discussed with clients about trading down (and these were people with no mortgage). I always suggested that one they had bought the new property, done any alterations, bought the new furniture, carpets, curtains and redecorated; then call me and let me know how much is left and we can then have a more fruitful discussion. It might not surprise you that very few had a significant surplus. People don’t want to move to an unappealing area. For those moving abroad there are many unexpected costs (not least decent lawyers) and the property tax rates often explain the disparity in prices.

    It may well be difficult paying a mortgage and also paying into a pension. The best method I have found is to try and pay off your mortgage as early as possible (age 45 or so is a good target) and then use the released cash flow to fund as much pension as possible over the following 28-30 years. Sure, it isn’t easy and sacrifices have to be made. Cut out gym membership and buy running shoes. Cut out the Costa Coffee, stop smoking! Less meals out and visits to the pub. Is Sky really necessary? Shop economically and budget very carefully.

  3. Good article Nic. It is quite often used as a way of a client intentionally blocking an adviser’s recommendation for a pension (I’ll sell my house at retirement and buy a smaller one instead of giving anything up now to save for retirement planning). My worst situation was dealing with a father and son. The son said he didn’t need to plan for retirement as he would inherit enough from his father to live on. I knew the father had left him only £1.00 in his will.

  4. Neil F Liversidge 22nd September 2016 at 5:01 pm

    So right Nic. I wish I’d a quid for every conversation I’ve had explaining to clients that in reality downsizing means down-marketing and in the process thereof, moving to an area away from their family friends and support networks. When it comes to it there’s not many as wants to actually do it.

  5. As the main home is the largest source of lifetime (and regular) expenditure for most over a 25 period of their adult lives (or even 30 to 35 year period for younger adults nowadays, due to the high price of properties in many areas), it is often left too late in terms of creating alternative savings and so many end up asset rich, with little or no mortgage at retirement but cash/income poor.

    Finding a smaller property in a ‘desirable’ location still comes at a premium and its not just the property, its the neighbourhood that really counts, especially when you live there 24/7 in retirement. It’s a conundrum.

    However, why not downsize whilst still working, but when the kids have left home (hopefully); after all, why rattle about for 10 or more years in a large house which is costing a lot of your potential retirement savings to look after (properties don’t always increase proportionately to their size)? This allows you to test drive a smaller home whilst building up savings from your surplus income and growth on any surplus sale proceeds. If it isn’t to your liking, well at least you still have some time and earnings to work things through before the big time arrives. I know a few people who have done this and they are among the happiest people that I know, so it must work!!

  6. I agree with all the above comments, even Nic’s!!
    When my children left home (within 2 weeks of one another) we sold the 5 bed detached house, bought a one bed flat and went off to Oz and NZ for a 3 month rethink.
    When our children were growing up, we felt a nice family home was essential and we stretched ourselves with no intention of ever repaying the mortgage or staying in that home.
    Now I spend more time at work than at home (or I go away on holiday), when I retire I will want a different home again, one I spend more time in.
    Home ownership can act as a barrier (especially with extortionate stamp duty) to both job mobility and to living in a property which suits your CURRENT lifestyle.
    Home ownership can make someone a wage slave if they are not careful.

  7. All valid points and well made, but do the public really listen to what the Bank of England, FCA, BBC or anyone else “say”? (really….)

    These are enormous social issues, based around fictional money, made by retail banks which combined with a housing shortage and a landlord culture have pushed prices out of any reasonable range. Salaries haven’t kept up and even if these were manipulated somehow, property prices would rise. Every Government “initiative” has merely added cash to the pile or deferred the problem (Shared Ownership). The only viable solution without significant chnage (such as property tax rather than income tax) is rent control, rather than rents subsidised by housing benefit (taxpayers)… and if there ever was any major shift in the supply of property, anyone relying on downsizing to release capital had better have a plan B.

    As Harry says, ideally live within your means, pay off debt early and save aggressively, but invariably not possible for most 20-30 somethings today.

  8. Even as little as £50 p.m. is worth the effort from an early age ~ surely not THAT hard unless your mortgage and family responsibilities are such as to leave with virtually nothing at the end of each month ~ and it gets you into the savings habit. I take on very young clients at a virtual loss, just as a reward for them taking the initiative and I expect many other FA’s do likewise.

  9. It might well help if the government were to impose a limit on unsecured borrowings, which are at an all time high, so that instead of buying stuff that they don’t really need by sticking it on their credit cards, young people were encouraged to give some thought to more responsible management of their finances.

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