One in 30 high-net-worth individuals (HNWs) plan to fund 100% of their retirement through their home’s value, according to the Saltus Wealth Index Report.
Halifax has reported a 4.6% fall in house prices, which could have significant implications for many HNWs and their retirement plans, warned Megan Jenkins, partner at Saltus.
She warned: “While historically, property has proved to be a fairly solid investment – which is why so many people think their property will be their ‘pension’ – this is not the wisest move.
“Firstly, and most importantly, diversification is key. Any investor should seek to ensure that their portfolio is diversified so that it is not subject to any one risk factor.
“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 continued: “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 here are, firstly, that the cost of buying your new home does not leave as much as you would hope to live on, secondly, that you may be forced to sell at a lower cost than you had hoped and thirdly, not being able to sell at all in the current market, meaning not having access to the capital when it is needed.
“Just like investing in any other asset, if you don’t have a plan B when relying on property values, you may be forced to sell at an inopportune time, or indeed unable to sell at all.
“The other risk, of course, is that you don’t want to sell – the reality is that people become very attached and comfortable in their family home meaning it is never the right time to downsize.”
Jenkins said like with retirement planning in general, anyone looking to utilise property values needs to plan ahead.
She added: “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.
“One of my clients had Power of Attorney for his elderly mother and is thinking of selling her home to help fund care home fees.
“In their case, his mother downsized a few years back and as a result has been able to accumulate other assets well in advance of needing to access the funds, meaning he is not in a situation where he is potentially forced to sell at a lower price.
“If you are in any doubt about your retirement plans, you should speak to a financial adviser to work on a solution that is bespoke to you and your needs.”
