“You can’t buy a sausage with a brick”
my first sales manager told me, when he found I was more interested in selling mortgages than pensions.
Back in 1984, few would have considered that the humble mortgage could leverage generational wealth to the extent it has. Those reaching retirement today are more likely to have money in bricks than in the bank and getting the money to pay later life bills from bricks is like getting blood out of a stone. My old boss was right.
The Financial Times is running an article today , asking why more elderly people aren’t downsizing. The article is prompted by research from Savills that shows that your chances of realising much cash from swapping your big house to a little house is limited by
- Where you live
- How much energy you have to find a new place
- Stamp Duty
- You having equity in your home (and not just a stack of debt)
Add to this sentimental attraction to the place you grew up in , raised your family in and brought your friends round to and you can see that down-sizing has its headwinds.
Financing future sausages
The article would have been better co-written with Jo Cumbo as it gives precious little thought to the advantages of buying a pension with the money released from downsizing.
Despite George Osborne’s declaration that no-one in Britain will ever have to buy an annuity again, people do buy annuities and some even transfer their savings into DB schemes to buy extra pension – especially extra state pension.
The idea, suggested by the article, that money released by downsizing just sits in the bank , may have experience behind it, but it need not be so. As Steve Webb has told us many times, happiness with buying an annuity increases with age. The longer we live , the more we like the idea that our income isn’t going to run out and we can get a defined income for the capital we have. People can and do buy purchased life annuities and they can and do buy gilts that pay them an income for a certain duration. Some enterprising older people invest through SIPPs to give themselves market driven income – taking a bet that the money will last as long as they do.
We find ways to finance our future expenditure , providing we have the liquidity to buy sausages when the opportunity arises.
In the 1990s there was a craze for embedding IFAs in estate agents as mortgage brokers, perhaps we should ask them back to broke annuities!
