‘My house is my pension’: How to dispel the property myth

Property is no longer the nest egg some imagine, and your clients need to know...

The baby boomer generation, having made big returns on property in the 1980s, is well versed in the virtues of property investing.

However, it can be hard to illustrate to them that although the value of their house has grown considerably, it is unlikely there is enough money in their property to keep them in old age.

After the house price crash of 2008, it is even more important to dispel the property myth than ever.

Three advisers gave us their best tips on how to wake clients up from their property daydreams.

Delusional

Jason Witcombe, director of Evolve Financial Planning, said some people’s faith in the robust value of their house borders on delusional.

“People always think their property is immune to market crashes,” he said.
“Imagine if there were signs on houses that displayed their value every second of every day, like a stock market. People would not get out of bed in the morning.”

However, Witcombe said it is important not to push clients averse to saving straight towards pensions, particularly if they are basic-rate taxpayers.

“First I tell clients nobody needs a pension to have a secure retirement; you can do it with ISAs or savings accounts. You allay their fears of locking away money until they are 55,” he said.

“Then you help them balance their accessible money and their committed money to suit their needs.”

Liquid wealth

Pete Matthew, director, Jacksons Financial Planning, said clients are often blinded by the thousands of pounds their house is worth, and do not realise how little retirement income this translates to.

“I get clients to imagine a bucket, and inside is their liquid wealth, so the things which cannot go in the bucket are their house, their pension and their business,” he said.

“It shows you have to sell your house to get income, or remortgage or release equity.

“Simple cashflow modelling helps because clients cannot project how much income they need or can get for retirement.”

Diversify

Sam Caunt, company secretary, Kingston IFA, said he tells clients property investing can be rewarding, but it is also volatile and they must diversify if they are counting on property to pay for even some of their retirement needs.

“What if the local council diverts a bypass to the back of your house and the value falls? Or you could be in green belt country and some travellers arrive,” he said.