Castle Trust’s research shows that around 3.25 million households – 13% of working adults - plan to downsize their home to help fund all or part of their retirement.
On average they hope to buy a house 36% cheaper – equivalent to £57,400 cheaper, based on an average UK home worth around £160,000. And that is just the average, with 11% of downsizers aiming to buy a house at least 50% cheaper to help fund their retirement, while a further 4% plan to sell their home and not buy another property.
Castle Trust, a new financial services company that has launched with the aim of providing a safer way to invest in property and a safer way to buy a home, wants homeowners to be realistic about using their home as a source of income for retirement and to consider to risks of relying on a single property rather than a diversified index.
It is offering new investment products called HouSAs which enable savers to invest efficiently in the national housing market via their SIPP or ISA and which provide returns in excess of the Halifax House Price Index.
Sean Oldfield, Chief Executive Officer, Castle Trust said:
“We know that many people regard property as a good way to save for retirement – in fact the ONS Wealth and Assets Survey has shown that 60% of people under retirement age think that it is the best way to do so.
“However, your home is not an investment unless you are willing to permanently downsize, which only 13% of the population plan to do. This means only about 1 in 8 people plan to access the value in their home to fund retirement and the remainder will be generally heavily underweight housing as an investment. This is extraordinary when you consider that residential property is the UK’s largest asset class - at over £4 trillion it is greater than equities, gilts and bonds combined. It has also historically had the highest risk-adjusted returns of any of the major asset classes.
“For those 13% who are considering part of their home as an investment, they should be aware that the value of an individual property can differ greatly from the performance of the national index.”
Castle Trust’s HouSAs can be taken out for terms of three, five or ten years and are suitable for ISAs, Junior ISAs and SIPPs. The capital value of the Income HouSA tracks any rise or fall in the Halifax House Price Index and pays an annual income of between 2% and 3%, depending on the term of the investment.
The Growth HouSA offers a gain of between 1.25 times and 1.7 times any increase in the Halifax House Price Index or a loss of between 0.75 times and 0.3 times any decline. Both HouSAs are available for investments of between £1,000 and £1million.
Castle Trust also offers a new type of shared equity mortgage, the Partnership Mortgage, which is for 20% of the value of an owner occupied home alongside a repayment mortgage of up to 60% from a traditional lender and a deposit (or equity, if remortgaging) of at least 20%. There are no monthly commitments on the Partnership Mortgage and Castle Trust will share 40% of any profit made by the homeowner when they sell or come to the end of the mortgage term. The company will also share 20% of any loss made on a home bought with a Partnership Mortgage.
