Despite a challenging period for the mortgage market, property wealth remains one of the most consistent assets available to most homeowners.
While some areas, such as London and the Southeast, have plateaued after years of double-digit house-price growth, most people will have seen a strong return on their investment.
Over the past five years, property values in England and Wales have increased by an average of 20%.
Retirees can effectively double their savings
This is particularly true for Gen X and Babyboomer owners, with people over 55 holding the majority of housing wealth in the UK, totalling more than £3.5trn in property assets alone.
These older homeowners are approaching, or in, retirement and many undoubtedly will be tempted to consider how this value hidden in their bricks and mortar might help support their retirement. Using equity release, for instance, the average homeowner could unlock £69,600 (assuming average equity release of 24%, as is consistent with Legal & General customers).
Pensions adequacy
While property wealth continues to pay dividends, pension adequacy remains a concern for most people in the UK.
Many retirees are unable to maintain the lifestyle they want with their existing pension pot alone. This will only become a greater challenge as people live longer and have to meet increased costs, such as those associated with residential care.
Property wealth, using products such as equity release, could increasingly be integrated into retirement planning
I predict that an increasing number of homeowners will turn to their property to bolster their retirement funds.
By tapping into their home equity, retirees can effectively double their retirement savings. The average pension pot at the point of retirement for Legal & General drawdown customers is £72,000; combining this with the likely property wealth that could be accessed using equity release would create an average pot of £141,600.
This provides a significant boost to someone’s finances and could add five extra years of retirement income when combined with traditional savings.
Regional impact
If more people look to property wealth as part of a blended approach to retirement, this could have interesting regional implications. In some areas of the country, individuals may end up taking a greater proportion of their retirement fund from their home as a result of local house-price fluctuations.
Younger homeowners are more likely to regard their property as an asset as well as a home
In areas where property values have continued to increase, equity release may gain popularity as homeowners want to access the gains without the hassle of moving. In areas where prices are high but have stagnated, downsizing and moving somewhere more affordable may be the best way to access wealth.
This is particularly true in light of the fact that the regional picture for house-price growth has shifted.
While property values remain high in London and its surrounding areas, they have not continued their historical growth. Meanwhile, homes in Wales, the Midlands and the Northwest have seen significant house-price rises in recent years, presenting renewed opportunities for the people living there.
Areas such as Blaenau Gwent (+49%), Merthyr Tydfil (+46%), Broxtowe (+39%) and Salford (+38%), in particular, have experienced dramatic increases in property values over the past five years.
I predict that an increasing number of homeowners will turn to their property to bolster their retirement funds
However, it remains to be seen if uneven house-price growth widens wealth gaps between regions, with people in high-growth areas experiencing greater comfort in retirement.
A keen understanding of these local differences is important for advisers, who need to tailor their advice with the realisation that locals in areas with high house-price growth may be more likely to be persuaded to access property wealth.
Holistic planning
The most significant factor we’re likely to see in the coming years is a change in customer attitudes.
While, traditionally, people expressed some discomfort with drawing value from their home, our research has shown a greater degree of confidence among younger homeowners, who are more likely to regard their property as an asset as well as a home.
Property wealth remains one of the most consistent assets available to most homeowners
Property wealth, using products such as equity release, could increasingly be integrated into retirement planning.
As an industry, we need to anticipate this, providing holistic advice and guidance, and product innovation that helps people use their assets collectively to fund their later life.
Lorna Shah is managing director of Legal & General Retail Retirement
This article featured in the December 2024/January 2025 edition of Mortgage Strategy.
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