Wealth accumulated via mortgage repayments rose to £62.7bn in 2016, raising hopes it could ease a looming retirement income crisis.
The figure represents a 54 per cent increase on 2005 and is the highest since records began in 1999, according to the Equity Release Council (ERC).
Meanwhile, total homeowner equity in England alone reached an unprecedented £2.6tn, with £1.8tn belonging to over-55 households – a figure forecast to double by 2036.
The figures are published in a new ERC white paper, co-authored by Rob Thomas and Dr Louise Overton, which evaluates the changing role of housing wealth in the post-‘pension freedoms’ retirement landscape and the challenges faced in meeting the demand for equity release.
Entitled Equity Release Rebooted: The future of housing equity as retirement income, the report argues equity release could help ease a retirement income crisis, as defined contribution pension savers are now facing a pension equivalent to only 15 per cent of their final salaries.
Housing wealth has the potential to play role in helping more people to meet a range of financial needs in later life, with the average worker potentially accumulating twice as much wealth via mortgage capital repayments each year than they contribute to their pension (£4,480 vs. £2,240).
The report calls for a single body for public finance guidance to provide a more joined-up approach across the equity release sector and other key players in the market.
It also suggests there is a need for advisers to develop their soft skills to build a positive consumer relationship, as online tools are not always appropriate.
Further ideas include tackling the stigma attached to debt in later life, promoting ‘future-proofing’ of products and more government support to help grow the industry.
Chairman of the ERC Nigel Waterson commented: “A major consequence of reforms to the retirement landscape is that pensions are now fully realisable and inheritable assets, just as other financial assets and property are. This makes it possible for retirees to plan their finances by considering all their assets, including their home.
“For many homeowners, the logical conclusion of a more structured approach to retirement planning will be outcomes that include the release of housing wealth to meet a range of financial needs.”
Tracey Lucas, equity release adviser at Needham Mortgage Centre in East Anglia, said: “People are starting to view their properties as a pension pot. I explain it to them, and it de-stigmatises the whole thing.
“What I am seeing is an increase in people who are not downsizing but upsizing because they need to be nearer their children or want a different type of house. Equity release is a means of doing that.
“Cases are becoming more complex as people are starting to understand the products a lot better and seeing what can be done with [equity release]."
simon.allin@ft.com
