We’ve heard the new government consistently say that it’s going to get worse before it gets better for the UK economy, so it’s fair to assume the cost of living will continue to be challenging and homeownership will remain out of reach for many. A growing number of individuals face the prospect of entering retirement without owning a home, and the implications for quality of life in retirement for ‘generation rent’ cannot be overstated. At Wayhome we think there is a real opportunity to join up pensions and housing. This partnership would not only help people get onto the housing ladder and avoid becoming a renter in retirement, but also provides a quality investible opportunity for schemes looking for strong returns with real world impact.
The financial challenges
For those thinking about and saving for their retirement while still renting, the financial future can be daunting. Renting often consumes a large portion of a retiree’s fixed income, limiting the ability to save or invest or to be able to enjoy their retirement. According to the Scottish Widows 2023 Retirement Report, in some areas of the UK rents can be equal to – or in excess of – average pensioners expected retirement income. Ranging from a median of 131% in London to 59% in the North East.
What’s more, as people enter retirement, rent costs continue to rise and income remains relatively static, placing a significant strain on retirees’ financial resources and impacting people’s quality of lives.
The Pensions Policy Institute (PPI) suggests the number of pensioners renting in retirement could more than double by 2041, estimating that home ownership in retirement will decrease from 78% to 63%. So this problem is only going to become more acute.
The health implications
Beyond the financial impact, renting (and renting in retirement) is also associated with various health risks. Research has highlighted that renters often live in conditions that are less conducive to good health compared to homeowners. Issues such as dampness, poor insulation, and the risk of eviction contribute to a higher prevalence of physical and mental health problems among renters. These challenges are particularly acute for older adults, who may already be more vulnerable to health issues.
For retirees, living in substandard rental housing can exacerbate existing health problems and lead to increased healthcare costs, further straining their limited financial resources. The stress and anxiety associated with housing insecurity can also impact mental health, reducing overall quality of life during retirement. To give an example, a survey
from the National Housing Federation found that half of all employed older private renters (52%) want to retire but cannot currently afford to due to their housing costs and that a majority of employed older private renters (78%) worry their future pension won’t meet the increasing rent prices.
Is there a simple answer?
Well, probably not, but finding an alternative, innovative solution to help more people own their own home in retirement is key. The traditional pathway to homeownership – saving for a significant deposit and securing a mortgage – has become increasingly difficult. We know that millions of people can comfortably afford to rent the house that they want but are unable to get the mortgage to buy a similar home.
But, models like our Gradual Homeownership (GHO) offer an alternative that could help more people achieve homeownership, even as they approach retirement.
Our GHO model allows individuals to purchase a portion of a home while renting the remainder. Over time, they can increase their ownership stake by buying additional shares of the property as their financial situation permits. What’s more, given there is no debt involved, the model is fully Sharia compliant, opening up home ownership to this underserved segment of the population.
This model provides a flexible approach to homeownership, enabling individuals to start building equity in a property without the need for a large upfront deposit. It allows regular families to buy a regular family home, helping people meet their aspirations and get on the first rung of the homeownership ladder without making difficult compromises.
What’s in it for investors?
There are many benefits for investors in our approach through providing strong security with a proven low risk of default, the potential for place-based investments, rapid deployment of funds, diversification and scale, and, importantly, long-term inflation-linked returns.
This is also an investment with strong ESG and impact credentials as it is helping to address a huge societal issue that has ramifications well beyond the housing market. As mentioned above it is positive for those seeking a Sharia-compliant way to get on the housing ladder, but it also benefits public sector and key workers and the self-employed.
Thinking holistically
We will only begin to solve some of the big societal challenges that the UK currently faces by thinking in a joined up way. And what better place to start than joining up thinking around people’s two largest financial assets. Research demonstrates the impact that renting has on people’s retirement outcomes. Let’s help people make their money go further in retirement by giving them the opportunity to get on the housing ladder sooner.