More than half of UK households are expected to rely on property wealth to maintain their living standards in retirement by 2040, unlocking up to £23 billion annually and injecting £21 billion into the wider economy, according to new research by Fairer Finance.
The independent consumer group, which carried out the modelling on behalf of the Equity Release Council, says that 51% of households will need to draw on their housing wealth to fund life after work, as traditional sources of retirement income such as pensions and savings fall short. Based on this scenario, the use of lifetime mortgages and downsizing could represent 0.7% of UK GDP by the end of the next decade.
The study estimates that, in today’s prices, the average lifetime withdrawal per household accessing housing wealth could reach £140,000, with around 18% of over-60s expected to tap into their property assets in 2040 alone.
POTENTIAL FOR PERFECT STORM
James Daley, managing director at Fairer Finance, said: “It’s an inevitability that more people will need to rely on their housing wealth in retirement – and our new research shows the scale of the problem as well as the opportunity.
“The combination of smaller pensions, increased longevity and rising care costs threaten to create a perfect storm which will leave millions of people unable to maintain their living standards in later life.”
He warned that unless action is taken to integrate property into mainstream retirement advice, many homeowners will remain unaware or unable to use one of their most valuable assets. “There are a number of social, economic and regulatory barriers which stop housing being part of the mainstream retirement planning conversation,” Daley added.
HUGE GULF
The report highlights a stark gap between available pension income and the minimum standard of living expected in retirement. With housing wealth surpassing pension wealth for many households, Fairer Finance argues that using property to meet spending needs in later life must become a standard consideration in financial planning.
Commissioned by the Equity Release Council, the report makes five key recommendations to government and regulators to dismantle existing barriers. These include a call for increased housing supply suited to older people, stamp duty reductions to encourage downsizing, and the creation of tools that provide a single financial view of pensions and housing wealth.
ADVICE REFORM
The report also urges reform of the financial advice system to break down silos and ensure advisers consider all retirement assets, including equity release and later life lending products.
Specifically, the report calls on the Financial Conduct Authority to ensure advisers assess the full range of later life lending options, from age 50 onwards, and incorporate retirement planning into mortgage advice. It also suggests the regulator use its Consumer Duty powers to drive out product bias and support innovation in the market.
“Whether an older person speaks to an equity release adviser, a mortgage adviser or a financial adviser, how they want or need to use their housing equity should be part of the conversation”
Jim Boyd, chief executive of the Equity Release Council, said the findings present a significant opportunity to support both consumers and the economy. “Fairer Finance forecasts property wealth taken in the form of later life lending could inject £21 billion into our economy each year from 2040.
“This substantial amount has the potential to act as a real economic stimulus supporting businesses and improving the living standards and spending power of our rapidly ageing population,” he said.
According to the Council, some 45,000 UK jobs are already supported by equity release activity. Boyd said the growth of later life lending could take this to “another level”, but that conversations around using property wealth must become more mainstream.
“Whether an older person speaks to an equity release adviser, a mortgage adviser or a financial adviser, how they want or need to use their housing equity should be part of the conversation,” he added.
“Equity release will become an increasingly mainstream source of income.”
Lorna Shah, managing director, Retail Retirement, L&G, said: “At L&G, our own research also indicates that equity release will become an increasingly mainstream source of income for retirees, in part due to the growth in property wealth.
“As Fairer Finance sets out, the financial requirements of those in retirement will vary at different stages of their lives. These needs can range from paying off an existing mortgage, gifting to family, or making home improvements. Our research also highlights the increasingly important role equity release is expected to play in care-related expenses in the future.
“For many, releasing equity from their home could be one of the most significant financial decisions made in retirement. Financial advice is critical in helping homeowners take a balanced, holistic view of the options available to them.”
UNLOCKING HOUSING WEALTH
The report, How can housing wealth bridge the later life funding gap?, draws on economic modelling of over 9,700 household scenarios to assess the potential impact of unlocking housing wealth. It estimates that older households could withdraw around 0.5% of the UK’s total housing wealth annually by 2040 to meet spending needs.
The findings come as policymakers face mounting pressure to address the UK’s ageing population and the long-term sustainability of retirement incomes. Without intervention, Fairer Finance warns, many retirees could be forced to reduce their quality of life or rely more heavily on means-tested benefits.
