Around 51% of UK households are forecast to need housing wealth to fund their “desired later life lending standards”.
According to a report from Fairer Finance, this will unlock around £23bn in property wealth each year by 2040 and could deliver a £21bn boost to the UK economy each year.
The report noted that 38% of future retirees are expecting to have an income below the recommended minimum living standard.
The median total amount taken over their lifetime is estimated to be around £140,000 in today’s prices.
The gross value added (GVA) of this spending is worth £21bn to the UK economy (in today’s prices). This would represent approximately 0.7% of total UK GDP in 2040.
The report noted that on average, people in the UK hold more housing wealth than pension wealth. This shows a “major mismatch between resources and retirement funding strategies”.
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Fairer Finance has called on the government and the Financial Conduct Authority (FCA) to break down barriers in holder homeowners accessing equity and integrating housing wealth into retirement planning.
There are five policy recommendations: increasing housing supply, cutting stamp duty to allow for downsizing, normalising using housing wealth to maintain living standards in later life, creating a single financial view so consumers can see their pension and housing wealth in one place, and reforming regulation around later life advice.
On the financial advice side, the FCA needs to ensure that equity release advisers are obliged to consider all forms of later life lending, build more explicit consideration of housing wealth in the FCA rulebook, ensure advice on mainstream mortgages to people from the age of 50 onwards explicating retirement planning and later life mortgages, permit targeted support to help consumers consider housing wealth in retirement plans and use Consumer Duty levers to ensure the later life lending market is “vibrant and competitive”.
James Daley, managing director at the independent consumer group Fairer Finance, commented: “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.
“But with around 75% of the population owning a property as they reach retirement, many people are sitting on – and sleeping in – a significant store of wealth. As things stand, there are a number of social, economic and regulatory barriers [that] stop housing being part of the mainstream retirement planning conversation.
“For those who want to downsize, there is a lack of suitable and desirable retirement housing. Whilst when it comes to borrowing in later life, the silos in regulated advice markets mean many people are not being presented with all their options. If we’re to head off a later life funding crisis, policymakers need to start taking action to bring down these barriers now.”
Jim Boyd, chief executive of the Equity Release Council – the representative trade body for the UK equity release market – commented: “Fairer Finance forecasts property wealth taken in the form of later life lending could inject £21bn 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. 45,000 UK jobs are already directly funded through money released from bricks and mortar – the growth of later life lending can potentially take this to another level.
“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. Today’s report challenges us to develop a system that treats housing wealth as a core part of retirement planning, removes regulatory barriers and gives people the confidence to use it wisely.”