Do you have to choose between owning a home and planning for retirement?

Do you have to choose between owning a home and planning for retirement

Between 1991 and 2012, the number of people prioritising home ownership above retirement planning increased dramatically, according to a report from the National Institute of Economic and Social Research (NIESR) and the Association of British Insurers (ABI).

The research found that, for the people who purchased a home, there was an “economically and statistically significant decline” in household savings of 5%, lasting for at least 10 years after they bought a home. In other words, it is harder to save for retirement if you have a mortgage to pay. This reduced the average pension savings by 15%.

Unsurprisingly, for those people who don’t need a mortgage to buy a house, the purchase had no effect on their ability to save for the future.

Why do they have to choose?

It is natural to prioritise short-term needs whilst putting off thoughts of the future. Usually, short-term plans include satisfying an emotional desire to put down roots and get settled in life. In addition, the housing market has seen more positive coverage than savings of late. This has led many people to believe that buying a house may even be a good substitute for retirement planning, as they plan to downsize in later life to access its value.

It is also possible that the financial strain of saving for a deposit or making ongoing mortgage payments is holding people back from making meaningful contributions to their pension fund or savings.

A study by Mortgage Strategy shows that 36% of people aged 18-34, who live with their parents whilst saving for a deposit, worry that they won’t be able to afford a home. Naturally, if the inability to afford their deposit is keeping them awake at night, putting money away for retirement is likely to be the last thing on their mind.

The effects of choosing

Prioritising either buying a home or saving for retirement will have its drawbacks, whichever is your main aim. Choosing to put all your spare income into buying a home and paying a large mortgage can result in:

  • Never having enough capital to provide a liveable income in retirement
  • Having to drastically reduce your standard of living during retirement due to a lack of income
  • Having to postpone your retirement for many years, reducing the time you have left to enjoy those work-free days

Alternatively, putting too much into your pension fund, without ever buying your own home will leave you at the mercy of landlords and rent rates. Renting rather than buying also means:

  • Less freedom to make changes to your home
  • Reduced long-term security, as you may be unable to stay in your rented property for as long as you wish
  • Never fulfilling the emotional need that many of us have to put down roots

Can I have it all?


It might take a few years and may require a few changes to your budgeting, but, by taking advantages of the schemes and products available, you could find that owning a house and saving toward a rewarding retirement are both possible.

Examples of products and schemes available to help you toward this are:

  • Lifetime ISAs: If you are eligible (aged between 18 and 39, a UK citizen and a first time buyer) a Lifetime ISA offers a 25% government bonus on deposits, as well as the ability to save up to £4,000 tax-free each year until the age of 40. This can be used as a deposit for first time buyers.
  • Workplace pensions: In these schemes, employers and employees both make contributions, therefore your eventual pension fund will be worth more than you have contributed yourself. So, make sure that you join yours and don’t opt out.

To find out more about saving and balancing your financial priorities, get in touch.


Request a callback

We'd love to hear from you, either call us on 0131 549 9555 or complete the form below