Equity ReleaseAug 13 2018

Warning against housing equity 'get out of jail free' card

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Warning against housing equity 'get out of jail free' card

Those with the smallest pensions tend to have little or no housing equity to draw on in retirement, according to research by Royal London.

The provider said the findings dispelled the myth that the equity in a family home was a "get out of jail free card" for those with low pension savings.

Royal London uses data from the Office for National Statistics's wealth and assets survey to look at the pension income and housing wealth of nearly 7,000 pensioners across Great Britain.

It found that while those with the highest pensions were almost all home owners, around a third of the poorest pensioners were still renting in retirement and had no housing equity to draw on.

Meanwhile the people with the most housing equity tended to be the same people who had the highest pensions. Among the poorest fifth of pensioners, the average housing equity was only around £150,000 while among the richest fifth it was just over £400,000.

Royal London found the main exception to this rule - where lower income pensioners had a worthwhile amount of housing equity - was in London and the south east, particularly those who bought their council house under Right to Buy in the 1980s and 1990s.

Sir Steve Webb, director of policy at Royal London, said: "Official figures suggest that around 12m people of working age are not saving enough for their retirement. It might be tempting to think that as long as such people are homeowners in retirement then they can top up meagre pensions by using the value of their home. But this research shows that even owning a home is not a ‘get out of jail free card’ for those with poor pensions.

"Many of those with low pensions also have relatively small amounts of housing equity, and lenders will often lend only a small percentage of the value of your home. Whilst using housing equity will help some groups of poorer pensioners, particularly in London and the south east, for most there is no substitute to building up a decent pension for a comfortable retirement."

In London pensioners tended to have an average housing equity of £399,000, while in the south east this was £334,000.

But in other parts of the country this was considerably lower. In Scotland the average housing equity a pensioner had was £157,000, in Yorkshire it was £165,000 and in the north east it was £136,000.

Royal London also warned that while three quarters of all pensioners currently own their own home, this was likely to fall in the future as younger people struggled to get onto the housing ladder.

The provider warned that even the 45-64 age group has lower rates of home ownership than a decade earlier, which will eventually feed through into the retired population.

Meanwhile for 25-34-year-olds on a middle income, home ownership fell to just 27 per cent in 2016, compared to 65 per cent 20 years ago.

damian.fantato@ft.com