Boost in property wealth could help those retiring

People over the age of 55 underestimate their property wealth by more than £90,000, according to a new study.

The research conducted by the Equity Release Council has shown that three-in-five older homeowners in this age group (60 per cent) had not had their house valued since they first bought it.

The Council’s study also shows that the average UK homeowner aged 55 or over paid £100,756 for their existing home and, after living there for an average of 17 years and 10 months, they now estimate it is worth £257,584.

This equates to an overall house price rise of 156 per cent, leaving them with an extra £156,828 of equity even before mortgage repayments are accounted for; a figure that is more than six times the average single defined contribution pension pot at retirement (£25,000) and almost three times the average amount used to buy an annuity (£55,750).

This means that many people over the age of 55 have far greater housing wealth than they realise, which could be used in later life to help fund a more comfortable retirement, the Council says.

By examining market trends, the Council’s research suggests people’s tendency to misjudge their housing wealth may be linked to low awareness of how price rises have affected the property market in the region where they live.

They found that across the UK, over-55s believe house prices in their region had increased by an average of 4.4 per cent in the last year, compared to the actual rise of 6.1 per cent recorded by the Office for National Statistics (ONS).

The Council’s research also suggests four in five homeowners aged over 55 would consider using housing wealth to get the most from their retirement. However, 31 per cent feel the best solution is to use their pension savings before their property wealth and one in ten (10 per cent) would prefer to use their savings and property wealth at the same time, while a further nine per cent would rely solely on property wealth or use it before their savings.

This leaves 11 per cent who want guidance or advice on the best option for them, and 19 per cent say they do not care which approach they take so long as it gives them the best outcome. The remaining 20 per cent feel the best outcome for their retirement will rely solely on pension savings.

The study also revealed that one-in-three homeowners aged 55+ (38 per cent) think unlocking money from the value of their home is likely to benefit them financially in later life, while another 29 per cent are unsure.

Among those who would consider using their housing wealth to help pay for retirement, downsizing is the main preference (42 per cent), while almost one in four (22 per cent) would prefer to stay in their current home and use a lifetime mortgage to release some equity. The remaining 36 per cent are open to either option based on their circumstances.

Asked what concerns them about making financial decisions in retirement, almost one in four (22 per cent) are worried about not understanding their options and missing out on something that might benefit them.

Nigel Waterson, Chairman of the Equity Release Council, said: “It is no secret that the property market has been kind to many homeowners, but it is remarkable to see how far people underestimate the potential size of their housing wealth, which puts the average pension pot in the shade.

“At a time when savings are scarce and retirees face an uncertain financial future with the end of generous final salary pensions, these findings prove just how important it is that property wealth plays a role in financial planning for later life.

“They also show a large number of people are looking for help to decide how using their savings, equity release or downsizing can work best to meet their individual needs.

“It is vital the Government acts on the Treasury Select Committee’s recommendation to include housing wealth within its pensions guidance service.

“It must also work with industry and regulators to improve access to advice so people can consider all the options open to them in retirement and choose the one best suited to their circumstances.”

Link: Research by Equity Release Council