An independent report from Fairer Finance, How can housing wealth bridge the later life funding gap – commissioned by the Equity Release Council (ERC) – indicated that 51% of households aged 60 and over could benefit and close the regional gap in retirement living standards by 2040.
The report said this would be more useful in regions like the North East, which has the lowest average annual pension income at £16,380 – significantly below the £31,700 needed for a ‘moderate’ retirement standard, according to Pensions UK.
In the first half of the year, the average house price in the region was £261,692. If homeowners were to release 40% of their property value, they could supplement their retirement income to reach a moderate living standard for six years.
The report suggested there was a similar situation in the West Midlands, where the average annual pension income for a single person is £16,440. In the region, homeowners could unlock £98,000 to top up their income and match the moderate standard for 6.3 years.
In London, where the average annual pension income is £17,160 compared to average house prices of £561,000, releasing 40% equity would equate to £224,400. This would support a moderate retirement standard for 15.4 years.
The new-build energy advantage
Sponsored by Halifax Intermediaries
The report also made suggestions to reform police and help homeowners to fund retirement.
It said the government should support a rise in the supply of suitable retirement properties in attractive communities and reduce the financial cost of downsizing for older homeowners.
Fairer Finance and the ERC also proposed that the government “normalises” the use of housing wealth to maintain living standards, and said a personalised service should be created by regulators and the government to unite pension and housing wealth.
The report said the Financial Conduct Authority (FCA) should reform regulation around later life advice to break down silos and ensure people are supported as they reach retirement.
In its Mortgage Rule Review, the FCA proposed the idea of mandating equity release qualifications for advisers.
|
Region |
Weekly net pension income (single, after housing costs are deducted) |
Average annual pension income (single, after housing costs are deducted) |
Shortfall between average income and moderate retirement (£31,700) |
Median house price |
Equivalent of 40% equity |
|
North East |
£315 |
£16,380 |
£15,320 |
£164,000 |
£65,600 |
|
West Midlands |
£320 |
£16,440 |
£15,260 |
£247,000 |
£98,800 |
|
North West |
£325 |
£16,900 |
£14,800 |
£212,000 |
£84,800 |
|
Yorkshire and the Humber |
£326 |
£16,952 |
£14,748 |
£204,000 |
£81,600 |
|
London |
£330 |
£17,160 |
£14,540 |
£561,000 |
£224,400 |
|
East Midlands |
£339 |
£17,528 |
£14,172 |
£239,000 |
£95,600 |
|
Scotland |
£343 |
£17,836 |
£13,864 |
£192,000 |
£76,800 |
|
East of England |
£344 |
£17,888 |
£13,812 |
£338,000 |
£135,200 |
|
South West |
£366 |
£19,032 |
£12,668 |
£302,000 |
£120,800 |
|
South East |
£370 |
£19,240 |
£12,460 |
£383,000 |
£153,200 |
|
Region |
Equivalent of 40% equity |
Shortfall between average income and moderate retirement (£31,700) |
Years equity release could top up current retirement income to moderate retirement income |
Full additional years funded to a moderate level of retirement income |
|
London |
£224,400 |
£14,540 |
15.4 |
7 |
|
South East |
£153,200 |
£12,460 |
12.3 |
4.8 |
|
East of England |
£135,200 |
£13,812 |
9.8 |
4.3 |
|
South West |
£120,800 |
£12,668 |
9.5 |
3.8 |
|
East Midlands |
£95,600 |
£14,172 |
6.7 |
3 |
|
West Midlands |
£98,800 |
£15,620 |
6.3 |
3.1 |
|
North West |
£84,800 |
£14,800 |
5.7 |
2.7 |
|
Yorkshire and the Humber |
£81,600 |
£14,748 |
5.5 |
2.6 |
|
Scotland |
£76,800 |
£13,864 |
5.5 |
2.4 |
|
North East |
£65,600 |
£15,320 |
4.3 |
2 |
Tapping into housing wealth to support asset-rich, income-poor homeowners
Jim Boyd, CEO of the ERC, said: “The UK’s retirement landscape is changing fast. Many people have more property wealth than housing wealth and property will form an increasingly important asset to fund longer lives in retirement. Yet, too few people know it’s an option or feel confident exploring it.
“Our findings shine a light on the potential for housing wealth to provide better retirements for people across the UK, especially in regions like Yorkshire and the Humber and the North West, where pension incomes are lower but property wealth remains strong. Millions of older homeowners are asset-rich but income-poor, and are often unaware that their home could be the key to a more secure retirement.”
Boyd added: “The estimate that people may unlock £23bn a year by 2040 highlights how transformative the use of property wealth could be for our rapidly ageing population and for the wider economy by increasing older people’s spending power. We now need to break down the barriers to using housing wealth confidently and safely, from outdated perceptions to fragmented advice.
“This isn’t about pushing people in one direction. It’s about giving everyone access to trusted guidance and flexible options, so they can make informed choices that work for their circumstances, wherever they live.”
James Daley, managing director of Fairer Finance, said: “The relaunch of the Pensions Commission shows that this government understands the severity of the impending later life crisis. While the commission will hopefully unlock new ways to get people saving more for retirement, its actions will come too late for those who are already approaching later life without adequate provision.
“For many in this generation, using their housing wealth will be a vital lifeline to support a decent standard of living in later life. But there’s still work to be done to ensure people can access their housing wealth.
“It’s crucial that the government does not lose sight of the problem facing the next generation of retirees, while it looks for a solution for future generations. Our report makes a range of pragmatic policy suggestions to ensure more people can use their housing wealth in retirement – and we urge ministers to act on these as soon as possible.”
