Homeowners currently own a record £5.7 trillion in housing equity that many could potentially tap into – although doing so definitely won’t be the right option for everyone.
The previous high of £5.6 trillion was seen in mid-2022, according to analysis by The Equity Release Council, when the housing market was boosted by pent-up demand after the pandemic. The current record is due to house prices recovering in recent months.
Around £3.4 trillion of property wealth is owned by over-55s, who make up more than half (55%) of homeowners. Three-quarters (76%) of over-55s own their own home, the Council’s analysis shows, and the average over-55 owner-occupied household in the UK currently has £321,213 of equity in their home, which is equivalent to almost 10 times the average pensioner couple’s annual net income of £38,168.
Jim Boyd, chief executive of the Equity Release Council, which is the trade body for the equity release sector, said “While we haven’t seen double digit growth in house prices this year, we have seen the property market start to recover which has pushed the total value of unmortgaged residential property in the UK to over £5.7 trillion.
“Much of this is in the hands of the older generation and our findings make it crystal clear that your prospects of living comfortably in retirement will rest on firmer foundations if you own your own home and include property wealth in your financial plans.”
Here, we look at some of the pros and cons if you’re considering using some of your property wealth to help support you in retirement, and why it’s essential to seek financial advice first.
Want to speak to a mortgage advisor? Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage.
If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 1,250 reviews.
Should you tap into your property wealth?
Many households are currently feeling the pinch due to sky-high inflation in recent years. This is likely to continue, particularly for pensioner households, the vast majority of whom are facing losing access to winter fuel payments this year, as the Government has withdrawn this benefit for those not on means-tested benefits.
Mr Boyd said: “Spare funds aren’t easy to come by in the current climate, either for households or for Government so it’s vital that we help older homeowners consider the role that the £3.4 trillion worth of property wealth can play in later life finances.
“Whether it is boosting income, managing unsecured debt, paying for care or helping to get family members onto the property ladder, there is a huge amount of potential tied up in bricks and mortar.”
If you’re considering accessing some of your property wealth, then a lifetime mortgage is the most popular type of equity release plan in the UK. This involves taking out a long term mortgage on your home that does not need to be repaid until you die or go into long-term care and your property is sold. You can find out more about how lifetime mortgages work in our article Lifetime mortgages explained.
Bear in mind that as you’re usually not paying off the interest you owe monthly, the amount you owe can roll up quickly over time, as you’re essentially paying interest on the interest you’ve already been charged.
Repaying some of your equity release plan early can help reduce the impact of compound interest, so may be worth considering if you can afford to do so. Learn more in our guide Can I repay equity release or a RIO mortgage early?
It’s also worth bearing in mind that releasing equity from your home could affect your entitlement to means-tested benefits, and it will also reduce the value of any inheritance you might have planned to leave, so it’s important to let your loved ones know your plans. Find out about the potential impact on benefits in our guide How lump sum payments and savings can affect your benefits.
The importance of financial advice
If you’re considering unlocking some of your property wealth using equity release, it’s vital that you seek professional financial advice first, so you can be certain that it’s the right option for you. An advisor can talk you through all the costs involved, and explore other ways you perhaps might be able to boost your retirement income.
Mr Boyd said: “Financial advisors need to ensure that when they are speaking to their clients, the role of property is discussed – even if the right approach is ultimately to look at other options. We need to encourage informed choices rather than simply relying on what works for previous generations.
“We urge the new Government to look beyond pensions to improve retirement incomes and stimulate the economy. There is a compelling need for Government to set out its vision for property wealth in later life funding: a thriving later life mortgage market can help to achieve both of these outcomes.”
Want to speak to a mortgage advisor? Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage.
If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 1,250 reviews.
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