The LV= 2012 HIPpies (as LV= dubbed them, standing for Home is Pension) report reveals that despite low confidence in the housing market, many working over 50s still believe their home will play a significant part in funding their retirement. While over a quarter are planning to use the equity in their home, nearly half (49%) of homeowners over 50 say they would consider downsizing to a smaller property, or using an equity release product (17%) to access the money in their property during retirement.
However, many over-50s are faced with the reality that their house may not be as valuable as they had once hoped, with 39% of homeowners over 50 believing their property has decreased in value over the last three years by an average of £21,749 - a massive £58 billion[2] collectively.
In order to maximise the money they could use from their property, 18% of over 50s who believe their property value has fallen aim to wait for their property value to improve before considering using the equity to help fund retirement, and a further 9% plan to make improvements to their home to try and increase its value. Despite the uncertainty in the housing market, more than half (54%) of over 50s with children would recommend their child invests in property to fund their retirement.
With finances being stretched from all angles, it is no surprise that over a third (35%) of over 50s admit they may need to delay their retirement for financial reasons, with an additional fifth (20%) looking at ways to boost their retirement income before they retire such as taking a second job or taking in a lodger. One in seven (14%) will be retiring when they planned; however will take a lower income in retirement than they originally thought they would. Worryingly one in six (16%) are not thinking about their retirement finances at all.
Vanessa Owen, LV= Head of Equity Release said:
"Turbulent times are still ahead for the UK economy, but despite the uncertainty surrounding the housing market our HIPpies generation have not been discouraged. The number of over 50s planning to use their home as their pension has remained stable when we compare it to our 2011 report. A property is often the largest asset people have, so it makes sense for them to see it as a way of helping to provide an additional stream of income for them when they retire."
Spending the cash
As well as using the cash in their property to supplement their retirement income, one in 10 (10%) of those over 50 plan on using the money locked in their home to help their children or grandchildren to buy a new home, save for a wedding or help with school fees. A further tenth (10%) also plan to use the money to pay for care in retirement. While many are accessing the money in their homes through necessity, 5% plan to use it to fulfil a lifelong ambition in retirement, such as travelling around the world, or buying a boat.
Interest rates - consequences
Low interest rates are a significant concern to those savings for retirement, as the interest received on savings has fallen significantly since the start of the recession. A third (33%) of homeowners over 50 said they would be pleased if rates rose as the positive effect on their savings would outweigh any increase in the cost of paying back debt. Just over one in ten (13%) say an increase in the base rate would reduce their retirement income as the increased cost of paying debts such as loans and credit cards would restrict their ability to save.
Vanessa Owen concluded:
"With the purse strings being firmly tightened it is impossible to ignore the need for those over 50 to consider additional sources of retirement income. Planning ahead is vital, as is seeking professional financial advice. Using the money locked in their home can sometimes be the only way for people to secure a comfortable retirement."
How equity release can help
For those who would ideally like to stay in their home and not downsize or move, they can do so by using a suitable ‘equity release' or ‘lifetime mortgage' plan. However, this is a decision that should only be taken after consultation with family members and a professional financial adviser.
LV='s lifetime mortgage enables homeowners from age 60 to release equity from their property from £10,000 upwards. The flexible lifetime mortgage allows homeowners to release a cash sum and agree a guaranteed credit limit to draw on in future, with free revaluations to take account of any increase in property value.
