He said the Government would try to ensure that property prices rise more slowly than incomes to prevent another housing boom and make it easier for first-time buyers.
One wonders how the Government plans to dictate house prices. One step might be to get more homes built, which is long overdue. Mr Shapps believes using economic policy to keep rates low is another option.
But leaving aside whether it can stop the boom and bust, is it wrong to shun pensions in favour of bricks and mortar? You can see why homeowners might prefer property, with Labour’s derisory treatment of pensions, and stock-market performance unimpressive in recent years. Property prices have suffered but bricks and mortar are more tangible, and over time property increases in value.
But while I am all for investing in property, I can see the problem here. If most of your wealth is tied up in your home, accessing it is tricky. Selling up is the obvious way of doing so but how many are prepared to downsize in retirement? While some will, others won’t want to leave the family home and move to another area.
Much of the buy-to-let boom is down to investors looking for an alternative to pensions. But rental property can be sold and the vendor can live off the proceeds. It isn’t the roof over your head so it’s a practical option. This isn’t the case with your main residence.
An alternative to selling up is to release some equity. More people are taking out mortgages in retirement as a number of lenders will let you do this until you are 75. This works if you have the income to cover the monthly payments. But if you are planning on releasing equity because you are short of cash, the lender is unlikely to be impressed.
An equity release scheme is another solution but has its downsides – expensive and the property usually has to be sold to repay the debt after your death. This means the family will lose your home, which may not go down well.
I am all for investing in property for the future. But it needs to be done alongside other retirement planning, rather than ploughing all your money into your home and expecting it to be enough. If you aren’t prepared to downsize to release the cash and if your home doesn’t increase enough in value to provide a decent capital sum, it won’t work.
Melanie Bien is a director at Private Finance
