While skimming through a recent issue of a popular free evening newspaper, I happened across a story which presented an original take on the current housing crisis: a year-by-year account of how a £50,000 investment could have turned into £1m by 2016.
It soon transpired that this return would have involved moving from one London location to another every year for 20 years, and having the foresight (near Mystic Meg-like foresight) to predict which area of the capital would have the highest house price inflation that year. Although in many ways it was a silly story, it did hit on a very critical point, one which all homeowners, especially those approaching retirement, should consider carefully.
Many of us tend to keep our money in the bank, but a lot of us fail to realise that the bricks and mortar that surround us, our home, can also be worth much more than we first thought. We all know that house prices have been rising, but it is staggering to find out how little some people really know about the impact house price inflation can have, and indeed has had, on their own property. Often with clients we serve in the equity release industry, underestimating the value of one’s home can cause unnecessary stress and worry. With most over-65s staring at a lengthy period out of employment, and most wishing that time to be rather more relaxing than their working lives, gaining an understanding of house price inflation is key.
Many of the clients we help at Bower Retirement are often amazed when they discover their house is worth more than they thought, and, as a result, they may have more choices than they may have first envisaged. According to the Equity Release Council, as many as 60% of equity release customers have not had their homes valued since they first purchased it, some 18 years previous on average. The average equity release customer purchased their home for around £100,000, but that same property is now worth a whole lot more.
The Equity Release Council has asked customers about their expectations on house price inflation, and the answers are enlightening. Most estimated that their home will have surely increased in value, and the average figure came to a growth from the original £100,000 to around £260,000 – not too shabby. However, in reality, the average equity release customer now owns a property worth approximately £346,000, meaning most underestimate their property value by nearly £90,000.
A solid understanding of the possibilities housing wealth can bring act as an excellent remedy to the stress and pain that can beset the lead up to retirement. Some 80% of retirees claim they would consider using housing wealth to pay for later life, but at present most simply don’t know quite how much housing wealth they have at their disposal. Homeowners should look into having their property valued and then, and only then, can they understand the possibilities.
But what about their pensions? Most homeowners would say that they will rely on their pension to see them through their retirement, but the simple fact is that thousands of people are approaching retirement with a pension that won’t provide enough for the many years most of us will live as pensioners. Further findings from the council show that the housing equity gains of the over-55s are ‘six times the size of the average single pension pot’ which currently stands at a measly £25,000. So with most of us due to live well into our 80s, 90s and beyond, we will need a secondary source of retirement funding. Housing wealth is surely one area in which the media, government, and financial services professionals are bound to focus on soon enough.
