According to LV=’s annual HIPpies “home is pension” report, which looks at retirees using their property to pay for retirement, Brits in their sixties own a collective £993 billion out of a total £4.01 trillion in property wealth.
The report found that the value of the average property owned by sixty-somethings is £272,000. Three quarters (75 per cent) of people within this age group are mortgage free, and one in 12 (8 per cent) own a second home.
Retirement specialist LV= says the rise in people using property to fund their retirement is likely to have been driven by increasing house values over a long period, combined with the low interest rates available on savings that has reduced retirement income.
Just one in sixteen (6 per cent) homeowners over 50 stated that the value of their home has decreased in recent years, it is perhaps no surprise that half (52 per cent) of those in their sixties and nearly two thirds (63 per cent) of those in their late fifties are considering accessing money from their property to help fund their retirement.
For some near retirees unlocking the capital in their home is driven by a need to cover day-to-day essential costs in retirement. LV= found that 19 per cent of homeowners in their late fifties plan to use the equity in their main residence because they have not saved enough into their pension.
In the past 12 months, 114,000 of those aged 55 and over have taken out equity release, while 76,000 have freed up cash in their property by downsizing.
As well as allowing retirees to pay for once in a lifetime holidays and luxury purchases, some access the capital locked up in their home to pay off their mortgage and existing debts.
Of those who have released equity from their home, 38 per cent said that the cash will be used to supplement their retirement income and 4 per cent will use the money to cover their own care costs.
Industry figures show that demand for equity release has risen by 35 per cent this year and the pensions changes set to be introduced next year are likely to increase the number of people who become ‘HIPpies’ when they stop working.
From next April, retirees can choose to take their pension savings as a lump sum, but as the average pension pot is less than £30,000 this money is unlikely to go far. According to ABI data, the average (mean) annuity in 2013 was bought with a pension fund of around £35,600; but the median was around £20,000.
Richard Rowney, managing director of Life & Pensions at LV=, said: “Small pension pots, a lack of retirement savings, and the continuous rise in house prices are undoubtedly factors that have led to a rise in the number of people using their home to boost their retirement income.”