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According to a report published today by retirement specialist LV=, the ‘Home Is Pension’ mantra is still strong among Britain’s over-50s workforce. Although those surveyed believed that an average of £27,250 has been wiped off the value of their homes3, an estimated 1.3 million HIPpies still plan to use their property value to help provide retirement income.
In total, over-50s homeowners estimate they have lost £80 billion in property value due to recent housing market falls. Yet only 2 per cent say have been turned off the idea of using their home to fund retirement, while a further 11 per cent plan to take advice on unlocking the value of their home before they retire.
The new research also highlights the impact of the long-running house price boom on pension savings behaviour among over-50s homeowners now nearing retirement.
- One in eight (12 per cent) have consciously saved less into traditional pensions because of the perceived spiralling value of their home.
- A further 13 per cent say they couldn’t afford to buy their own home AND invest in traditional pensions, because property prices were so high.
The LV= research reveals that the house price plunge has hit hardest among homeowners within five years of state retirement age (age 60 to 65) Six out of ten people in this age group(58 per cent) believe the value of their home has dropped by an average of £29,000.
However, many enterprising over-50 year olds have plans to recoup this lost equity. One in six (17 per cent) will make home improvements to add to the value of their house, and one in five (21 per cent) say they will save extra money wherever they can. Nearly a third (29 per cent) say they will simply bide their time for property prices to recover.
Many over-50s are experiencing a ‘double whammy’, having seen large amounts wiped off the value of their pensions and investments whilst also being forced to reduce the amount they are setting aside for retirement due to the pressures of living costs during the recession. One in five over-50s (20 per cent) have had to cut their savings by an average of £137 a month4, meaning that many more in future may need to cash in on the value of their homes to make up for pensions shortfalls.
Trading down to a smaller house is one obvious way to release money from property value. But over-50s homeowners who prefer to stay put can still realise some of the value they have built up, by using a suitable ‘equity release’ or ‘lifetime mortgage’ arrangement. However, this is a decision that should only be taken after careful consultation with family members and a professional financial adviser, as it will affect inheritance plans.
Vanessa Owen, LV= Head of Equity Release, said: "In the decade leading up to the credit crunch, more and more homeowners saw their property as a potential cash cow to aid retirement. But in a matter of months millions of pre-retirees have seen both their property and pension fund values battered. Despite this, their confidence in the long-term value of bricks and mortar remains. House prices still have some way to go before full recovery but with increases for six consecutive months now, our HIPpies are feeling more confident that their home can still play a big part in helping to finance their retirement."
The LV= research also reveals that the majority of over-50s (34 per cent) believe it will take three to five years for house prices to return to their former value. This may explain why four in ten (41 per cent) of those planning to use their home to boost retirement income feel they are still on track to retire as planned.
One in six HIPpies (16 per cent) believe that their traditional pension savings are no longer enough to retire on and that their home is therefore the strongest pension option. A further 10 per cent admit that their home will be their only source of retirement income beyond the State pension.
Vanessa Owen concluded: "The recession has had a big impact on the personal wealth and pension pots of the over-50s, but for many their home is still a big part of their retirement income plans. Trading down to a smaller house, or using a suitable equity release product to get funds out of your existing home, can therefore play a big part in helping to make people’s retirement years more comfortable."
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