Is your property your pension?

House price growth has slowed to a three-year low, raising questions for homeowners relying on property for their pension.

Property was once seen as the ideal retirement asset for homeowners, with high house price growth helping downsizers release cash to fund their golden years.

But with house price growth slowing, can property still be relied on for your retirement?

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House price slowdown

The property market has been hit by high inflation and rising interest rates this year, which has seen mortgage pricing soar.

This is hitting affordability and demand in the housing market.

The latest Land Registry house price index shows annual house price growth slowed from 1.9% to 0.6% in July 2023.

That is the slowest rate since the pandemic, when prices rose by just 0.69% in April 2020.

Prices also slowed on a monthly basis from 1.9% to 0.5%, putting the average property price at £289,824.

It echoes other house price index reports such as from Halifax and Nationwide that show house prices are dropping at their lowest levels since 2009.

This may make homeowners hesitant to sell and make buyers more nervous about the offers they make.

But it also causes issues for retirees who may have been relying on the value of their home for their retirement pot.

Retirement risks

The house price slowdown may have come at a poor time for homeowners looking to release cash from their property to fund their retirement.

Slower price growth may mean getting a lower amount than you thought and it may even take longer to find a buyer if you are looking to sell due to lower demand.

Using property to fund retirement

The latest Wealth Index Report from financial planning firm Saltus, which surveyed more than 2,000 high net worth individuals, found one in 30 respondents intend to use their home’s value to fund 100% of their retirement, while on average, respondents said they expect their property to provide funding almost half.

Megan Jenkins, partner at Saltus, says that while historically property has proved to be a fairly solid investment for a pension, relying on your home may not be the wisest move nowadays.

“If you are solely reliant on one asset as a significant portion of your retirement provision and that asset were to crash or fall in value, you have no backup,” she says.

“Property is one of the least liquid assets you can own. If you are looking to downsize to release funds, you are relying on being able to release enough spendable capital at the right time to fund your retirement.”

The main risks are the cost of buying your new home does not leave as much as you would hope to live on, you may be forced to sell at a lower cost than you had hoped and may not be able to sell at all in the current market, meaning not having access to the capital when it is needed.   

“If you are looking, for example, to downsize to fund your retirement you should look to do this in plenty of time - the house buying and selling process can be a long one, particularly in a slow market - so it is important to downsize well in advance of when you actually need the funds,” Jenkins adds.

Property is still worth considering for your pension, says Scott Taylor-Barr, financial adviser at Barnsdale Financial Management, as part of a wider strategy.

“Any well-constructed retirement plan should have a basket of different assets such as pensions, Isas and property,” he says.

“This allows different elements to be accessed at separate times when the market conditions are optimal, so if the property market is down at the time you wish to retire you can access cash from some of your other assets and leave the property to recover before you sell it or raise cash against it with a lifetime mortgage.”

As with all investing and financial planning, diversification is key.

“Property is absolutely a viable retirement plan, but it shouldn't be the only element to that,” says Scott West, director of Propertyze Consulting.

“Having all your eggs in one basket leaves you at the mercy of the asset class in any given year.”

Downsizing your residential property can boost a retirement fund while a buy-to-let portfolio can also provide a healthy cash flow for the longer term, adds West.

“Those nearing retirement are likely to have historic final salary pensions which certainly boost the retirement position greatly,” he adds.

“Those with low or no pensions should speak to an IFA to discuss their retirement planning process - which can include the property element.”