Many home-owners in South-East not aware of potential ‘housing wealth’

Stephen Hillier, Cabinet Member for Children  Start of Life
Stephen Hillier, Cabinet Member for Children  Start of Life
  • 48% have not had their home valued since first buying it, more than 18 years ago
  • Estimated price increase of 177% compares to 237% reported by official data
  • Over-55s’ in the South East equity gains are eight times the size of the average single pension pot
  • Four in five (80%) would consider using housing wealth to help pay for later life
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One in two older homeowners (48%) in the South-East have not had their house valued since they first bought it more than 18 years ago, according to new research by the Equity Release Council (the Council).

The Council says that it leaves many over-55s with far greater housing wealth than they realise, which could be used in later life to help fund a more comfortable retirement.

The Council’s research shows in the South-East the average UK homeowner aged 55+ paid £113,027 for their existing home. Having lived there for an average of 18 years and two months, they now estimate it is worth £312,688.

This equates to an overall house price rise of 177%, leaving them with an extra £199,661 of equity even before mortgage repayments are accounted for. This figure alone is almost eight times the average single DC pension pot at retirement (£25,000) and more than three times the average amount used to buy an annuity (£55,750).

However, the Council’s analysis suggests even this may underestimate the individual housing wealth held by over-55s. According to the Office for National Statistics (ONS), the average house price in the South-East has risen by 237% over the last 18 years and two months.

Having originally been bought for £113,027 at the start of this period, the average property among over-55 homeowners in the South-East could therefore have a value of £381,279 today: almost £70,000 (£68,590) more than they estimate.

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.

In the South-East, even those who had their property valued since first buying it did so 4.3 years ago on average, a little less than the national average of four and a half years.

In the South-East, over-55s think house prices in their region have increased by an average of 5.8% in the last year, compared to an actual rise of 7.4% (ONS).

Comparing their estimates to reported house price rises over the last five years, the average regional house price rise of 24.1% (ONS) is more than seven percentage points higher than the 16.4% estimated by over-55s.

Asked to consider the role of pension savings and property wealth in funding later life, the Council’s research suggests four in five (80%) homeowners aged 55+ would consider using housing wealth to get the most from their retirement.

Almost one in three (31%) feel the best solution is to use their pension savings before their property wealth; one in ten (10%) would prefer to use their savings and property wealth at the same time; and 9% would rely solely on property wealth or use it before their savings.

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

More than one in three homeowners aged 55+ (38%) think unlocking money from the value of their home is likely to benefit them financially in later life, while another 29% are unsure.

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

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

Nigel Waterson, Chairman of the Equity Release Council, commented: “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.”