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Homes are a worry as rents go through the roof

Over 55s approaching retirement have their eye on saving for their later years and giving up work - but renting a home is a big worry for many as rents go through the roof.



Thousands of renters are trapped in a housing crisis that leaves them panicking about how to pay for their home if they retire.



Rents are rising alongside the cost of living - up to an average £718 per month in September, according to the latest research by one of Britain's largest letting agencies, LSL Property Services. The firm is behind brands like Your Move and Reeds Rains.



The firm says a tenant is pay £29 a month more now than rent for the same house a year ago - an annual increase of 4.3 per cent.



The figures are even worse for tenants in London where rents have surged by an inflation-busting 5.8 per cent in the same period.



Rents are expected to keep rising, certainly in the short term, as pent-up demand to buy homes is dashed by banks and building societies tightening up mortgage lending.



The Council of Mortgage Lenders, the trade voice for the UK's major mortgage lenders, has already hinted mortgage lending will remain at the same low levels for 2012.



David Brown, commercial director of LSL Property Services, said: "No region has been immune to the growing demand for rental homes from frustrated buyers. In many cases, buying a home is now cheaper on a monthly basis - provided renters can get past the stumbling block of the substantial deposit requirements.



"For the majority, saving a £25,000 deposit is a Herculean task, as inflation and rents climb - and most would-be buyers are biting the bullet and prolonging their stay in increasingly costly rental accommodation.



"As things stand, we won't see competition amongst prospective tenants diminish without a substantial expansion in the supply of rental properties available on the market."



The worry for retired tenants living in private rented property is not only will the rising cost of living eat in to their savings and spending power, but rent inflation will also take a large bite out of their income.



Housing benefit is unlikely to take up the slack as the government revamps state pay outs to slash borrowing by introducing universal credit that is lowering the thresholds for claims.



Financing a home is a huge problem for anyone aged over 40 as well as those approaching retirement.



Most mortgage lender will only lend money based on the borrower having funds to meet the monthly repayments - and the rule of thumb this is until someone is 65 years old, maybe 70 in some cases.



With the average mortgage term running 25 years, someone aged 45 buying a home has a difficult financial choice.



They either pay more for the home loan over a reduced term of 20 years at the expense of their pension and retirement savings or save for their later years and miss out on the home they really want.



Online property portal has exposed the plight of 'trapped tenants' in a recent study.



The firm asked more than 4,000 people about their homes and found 55 per cent of tenants are concerned they will have problems raising a deposit to buy a home in the short-term.



Around 40 per cent believe they will rent for at least three years.



More than a quarter of these renters (27 per cent) are aged over 40, worried about having a mortgage until they retire - or beyond in some cases.



"Over half of those in rented accommodation would like to buy now but can't make the sums add up and, as a result, are trapped," said Rightmove director Miles Shipside.



"The global economic woes that have left first time buyer numbers at record lows will shatter the goals and aspirations of many as they face the reality of renting for far longer than they originally planned.



"Trapped renters over the age of 40 could face the prospect of being an OAP mortgagee, or face difficulty getting a 25-year mortgage term if it takes them beyond lenders' retirement age criteria."



The solution for over 40s and certainly over 55s with a dilemma about saving for a home or retirement is to join up their financial strategies.



Many householders separate planning for their home as well as their pension, when combining strategies and balancing priorities is probably a better option.



The trouble is no independent financial adviser has a magic cure for all financial woes, but looking at the whole picture rather than isolating savings from mortgages at least lowers the risk of not meeting either objective.



For those with a robust financial planning strategy and money to invest, the demand for buy to let is making property an attractive cash-generating asset.



The secret of buy to let is not speculate and rely on house price inflation to produce a return, but to invest in homes where the rent gives a decent yield.



Four out of 10 investors cite attractive yields from rents are their main reason for investing in property, up from 24 per cent just six month's ago.



A similar number are disenchanted about the poor performance of other investments and only 20 per cent are motivated by growth in the capital value of an investment property.



"Currently the stock market offers the certainty of a stressful rollercoaster ride and safe cash investments deliver the certainty of below inflation returns," said Shipside.



"Understandably the solidity of bricks and mortar combined with high tenant demand and rising rents has growing appeal as a physical asset that could prove to be a better hedge against inflation."



Retirement Solutions (UK) Ltd are independent financial advisers that specialise in financial products for the over 50s. Visit the web site at www.retirementsolutions.co.uk

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