Retirement: Worrying rise in people using property to pay for retirement

New research has shown the extent to which thousands of people are relying on their home to help fund their retirement.

The UK has always had a fascination with property and according to new research from LV=, the insurer formerly known as Liverpool Victoria, it will play a huge part in funding the retirement of half the population retiring over the next few years.

The research shows so called ‘Hippies’, or the ‘Home is my Pension’ generation, is increasing at a significant rate:

• 52% of workers over the age of 50 plan to use equity in their home to help fund retirement
• Amazingly, this is almost double the number just 12 months ago, when 28% of people surveyed said they would use their home to help fund retirement
• 75% of 1,014 people surveyed over the age of 50, own their home outright, with an average value of £258,000; significantly higher than the average house price in the UK

The survey also found there were other reasons why ‘Hippies’ might want to ‘unlock’ the equity in their home:

• 17% wanted to help fund the costs of long term care
• 13% suggested they would like to help my children or grandchildren financially, perhaps to pay for weddings, school and university fees or help with a house deposit
• 10% said they would like to make improvements to their home
• 8% wanted to make a luxury purchase

Vanessa Owen, Head of Annuities and Equity Release at LV= said: “The number of over 50s who plan to use their home as their pension has risen steadily since we first launched our report in 2010 and it is clear that for a large section of the population their home is will play a key role in funding their retirement. Property is often the largest asset someone has when they reach retirement, especially if they have lived there for quite a while, and will often significantly outweigh any pensions savings they have. As our report shows, having invested a considerable amount of time and money in their property, many would prefer to stay where they are and access the cash tied up in their home without having to move.”

Why are more people planning to use their home to fund retirement?

Firstly, most people in the UK have insufficient pension provision to fully fund their retirement and therefore need to look to other alternatives. This was confirmed by the LV= report, which showed only 26% of people are on track to retire as they had originally planned. Even worse, just 13% of people will be able to retire at their target date.

Secondly, after significant falls following the financial crisis in 2007 / 2008, house prices have now started to rise again; increasing the hopes of many that they will be able to release equity from their home to produce additional income in retirement.

Finally, many people have blind faith that property will always rise in value and that come what may, it will be the answer to all their problems in retirement. This is also confirmed by LV=, which found 84% of those surveyed thought their house had risen in value over the past three years. Furthermore 52% of over 50’s would recommend their children invest in property to help pay for their retirement.

Despite many people’s love of property, the report found that pensions are still more popular as a way of planning for retirement.

Although, and perhaps worryingly, 53% of people said they would recommend their children use a pension to plan for retirement, whilst 52% would recommend property.

How to use the equity in your home to provide an income

There are two main ways of accessing the equity in your home to help fund retirement, equity release and downsizing.

Both have significant disadvantages and should only be considered after considering the pros and cons of each option.

Vanessa Owen again: “With people spending longer in retirement one of the challenges that many need to overcome is how to fund it and how to meet the financial demands they may face in later life, such as the cost of long term care. For those considering unlocking the money in their homes it’s important to seek professional advice and explore all of the options available in order to find the best solution for them.”

There are many dangers of using your home to help fund retirement, including:

• The equity has to be accessed either through sale or equity release, both of which have significant downsides
• Using property to help fund retirement can lead to an undiversified portfolio of investments, to put it bluntly, by investing in property you are more likely to be putting all your eggs in one basket
• Despite the perceptions property can fall significantly in value; from the top of the last housing boom in 2007 to the bottom of the market in 2009 prices fell in the UK by 26% (Source: Halifax)
• Property is not always easy to sell and renting out your home can carry significant risk and cost

Do you need help planning for your retirement?

Our team of Independent Financial Advisers are experienced in developing retirement income strategies for clients the length and breadth of the UK.

Whether you are approaching retirement or it’s a distant dream, and you would like advice on your options call one of our IFAs today on 0115 933 8433, alternatively enquire online or email info@investmentsense.co.uk

This is a lifetime mortgage (or home reversion scheme depending to what you are referring in your article and your permissions). To understand the features and risks, ask for a personalised illustration.’  Where the promotion also relates to a home reversion plan the statement may be adapted to the extent necessary to comply with the equivalent requirement for home reversion plans.

CHECK THAT THIS MORTGAGE WILL MEET YOUR NEEDS IF YOU WANT TO MOVE OR SELL YOUR HOME OR YOU WANT YOUR FAMILY TO INHERIT IT. IF YOU ARE IN ANY DOUBT, SEEK INDEPENDENT ADVICE