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Property wealth set to fund retirement for UK homeowners

Retired homeowners standing outside their property considering their property wealth

Four in 10 (39%) UK homeowners fear they’ll have to leave the family home to fund their retirement, latest research from NOW: Pensions shows.

Of those people, almost a quarter (24%) are relying on their property wealth to top up the State Pension due to a lack of savings or any private pension income, says the workplace pension provider.

With 1.8m homeowners currently expecting to make mortgage repayments well into their retirement years, many retirees are facing significant pressure on their retirement income.

The research also found that around two-thirds (63%) of homeowners would choose moving to a smaller property or cheaper area, over remortgaging or taking in a lodger, when looking to supplement their retirement income.

The cost of downsizing

Home movers may want to proceed with caution, however.

According to Lloyds Bank*, the cost of moving home in the UK has soared to an average of £10,996 – or a huge £16,828 for those in the south east.

The figures increase further when factoring in the additional cost of making repairs to your new property. Figures from the Money Advice Service** warn buyers to expect to fork out around £5,750 to bring their new home up to scratch.

Adrian Boulding, Director of Policy at NOW: Pensions, said:

Homeowners have enjoyed rapid house price inflation in recent years, but the reality of downsizing means it’s not easy to access very much of that apparent wealth.

Making adequate pension contributions, which attract tax relief from Government and matching contributions from employers, remains the most painless way to prepare for a comfortable retirement.

Property wealth boost to homeowners

Of course, for many of us in or approaching retirement, the time for making pension contributions has unfortunately been and gone.

For those of us already struggling to get by on smaller than adequate retirement income, our property wealth could well be the key to a more comfortable standard of living.

Downsizing is a problem for many retirees though. In addition to being a potentially expensive option, moving to a smaller property or a cheaper area can be a stressful and upsetting experience.

However, thanks to rising house prices and more flexible financial options available today, there are alternative options to consider before selling up.

Some of the equity you have in your home (which is typically your house value minus your remaining mortgage amount) can be unlocked with a lifetime mortgage, and you don’t need to sell your home.

With house prices increasing as they have been doing, retirees may be surprised at how much equity they have in their homes.

According to the Nationwide House Price Index, the average home is worth £205,937 today – that’s £33,872 more than the average price 10 years ago.

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Flexible solution for retirees

As a result of new providers coming to the market in recent years, today’s equity release plans are more varied and flexible than they used to be.

The option to make voluntary payments to service the interest is just one of the latest developments to assist later life homeowners.

Combined with low interest rates and the option to completely repay the loan as little as 10 years in some cases – it’s no wonder equity release has been breaking records with its soaring popularity!

Remember, equity release will reduce the value of your estate and the amount of the inheritance you leave, so it is vital to speak to an independent specialist in retirement lending before making a decision.

*Zoopla Sept 2016