Providing for retirement
Chris Prior is manager, sales and distribution, at Bridgewater Equity Release
House prices may have stagnated somewhat in the past few years but before their current plateau they were increasing at a rapid rate and if you look at the long-term picture then the recent ups and downs are but a minor aberration.
Indeed, property values have soared so fast that to get a true reflection of the pace of change, one often needs to compare their progress to some other yardstick.
The Equity Release Council has done just that with its latest research which shows that, over the past 15 years, house prices have inflated nearly twice as fast as retirees’ income. House prices have grown by 91% (or £109,339) since 1997 but in the same time period average retirees’ income grew by just 46% or £6,343.
While this is as much an indictment of the modest budgets that those in retirement are being forced to make do with as it is a statement on the heady rise of property prices it also serves to highlight the chasm between the two.
Plus it is even more puzzling to figure out why more older homeowners aren’t capitalising on the increases by releasing some of the equity built up in their properties to make up for shortfalls in their retirement income. Factor in the rising cost of living, dwindling State pension provision and increasing care costs and it shows you just how much pressure older homeowners are under to maintain a decent standard of living into, and throughout, their retirement.
There are a variety of ways that individuals can fund their retirement and the Council’s research points to a growing reliance on annuities rather than investments, but it also again raises the issue of how many older homeowners remain unaware they can access the equity they have established under their own feet.
Many will have bought their properties more than 25 years ago, perhaps even half a century ago or longer, so the appreciation will be far more eye-watering than the 15-year figure. The misconception may exist that the only way to benefit from this price growth is to sell their property, but equity release affords them the best of both worlds – access to funds that can relieve pressure on their retirement income and help with additional expenses, while allowing them to remain in their own homes.
Advisers have sometimes struggled to effectively communicate the benefits of equity release and identify situations where it might be of benefit to their clients, but research like this provides them with the perfect tool. For all the good talking about the advantages of equity release can do, presenting them with such facts and figures adds to the overall proposition and sheds light on the solution.
With house prices likely to increase further over the course of the next few decades after the current economic malaise ends, and retirement incomes unlikely to follow suit, the gulf will only widen in the future and accessing the equity becomes even more logical. It may not be the perfect answer in every scenario, but for many it will provide an extra source of retirement income while allowing them to stay put in their cherished homes while never having to owe more than their property’s value.