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Six million over-45 homeowners see property as key to their retirement income plans – but is there enough house to go around?

Long term growth in UK house prices and homeowners’ lasting attachment to their homes mean people are turning attention towards property wealth to help manage their finances and boost retirement incomes, according to the latest Aviva Real Retirement Report.

It shows almost half (46%) of over-45 homeowners – equivalent to 6.08million UK households¹ – see the wealth built up in their property as a key part of their retirement income plans, rising to 58% among the youngest age group asked (45-54s). A generational shift in attitudes means this group are almost as likely to see property wealth as part of their retirement income plans as their inheritance plans (60%).

But with many over-45 homeowners pressured by existing mortgage debt, a desire to help younger generations onto the housing ladder and concerns over making their money last in later life, the report raises the question: is there enough house to go around?

Mortgage freedom
Aviva’s analysis reveals almost one in four (23%) mortgaged over-45s are worried about paying off their home loans, including 8% who are very worried. This suggests as many as 1.02m over-45 households in the UK are worried about becoming mortgage free, with those who are very worried numbering 354,201.

An average balance of £85,634 means these worried homeowners carry a collective burden of £87.2bn: equivalent to 7% of the UK’s outstanding £1.29tn mortgage debt².

One in three (33%) mortgaged over-45s do not expect to pay off their loans before passing the old Default Retirement Age of 65, while worryingly a further 17% do not know when they will become mortgage free. Another 4% think they will never pay off their mortgage: equivalent to 177,101 UK households.

Equity and emotions invested in property
Despite this pressure, Aviva’s research finds almost seven in ten (69%) over-45 homeowners say that their home is worth more than their pensions, savings and investments combined. With an average house price of £264,402 – 27% more than the UK average of £209,000³ – even those over-45s who still have mortgage debt are likely to have significant equity built up in their property.

Beyond the pure financial considerations, many have also developed a strong attachment to their home. The average over-45 homeowner has owned just three properties in their home-owning ‘career’ and has lived in their current home for 21 years.

Asked about their plans for retirement, four in five (80%) want to remain living in their home for as long as they are physically able to. In comparison, only 26% have either downsized already or plan to do so in the future.

The most common reasons for wanting to stay put are because they are happy or content (31%), value their independence (26%) or feel they live in a convenient and safe neighborhood (12%). In contrast, the most common main motive for downsizing is to find a home that is easier to maintain (41%), rather than financial reasons.

Borrowing in retirement
Aviva’s analysis suggests a significant number of over-45 homeowners will need to borrow in retirement to achieve their goal of remaining in their current home. One in six (16%) expect they will need to keep borrowing or borrow again in retirement: equivalent to 2.12m UK households. More than half of these – 1.19m – will rely on the ability to borrow to remain in their current homes.

More than 1m expect to need to borrow in retirement to meet daily living costs, while 1.72m expect they will need access to retirement lending to meet one-off expenses.

Aviva 2016-07-30

Demands on property wealth

More than half (52%) of over-45 homeowners feel they could benefit from using their home as an extra source of retirement income. Significantly more 45-54s (69%) feel this way than over-75s (39%), pointing to a generational shift in attitudes.

At the same time, over-45s have other uses in mind for their housing wealth. More than half (56%) feel it will be needed to pay for care in later life while the same percentage (56%) feel their quality of life would benefit from using it to pay for home adaptations.

Furthermore, 61% see property wealth as a key part of their inheritance planning. But with younger generations facing a challenge to get on the property ladder themselves, another shift may be occurring: 54% of over-45 homeowners would prefer to give money while they are still alive – ‘a living inheritance’ – to help a family member buy their first home, rather than leave a traditional inheritance. Just 34% say the opposite.

Intergenerational wealth transfer – can savings take the strain?
Aviva finds almost one in three (31%) over-45 homeowners have already or plan to give money to help a child buy their own first home, making an average contribution of £25,090. Most of those who provide financial support use their savings and investment income to do so, either to pay for a deposit (71%) or buy a property outright (10%).

However, over-45s’ ability to help is often constrained by their own finances. Despite 43% believing younger relatives will never own their own homes without family help, almost two in five (37%) would like to help a family member get on the ladder but can’t afford to.

More than half (52%) do not feel comfortable giving this help without knowing how much money they need themselves to live on in later life. This chimes with the fact that, when it comes to their own finances, Aviva’s data shows making their money last long enough is people’s biggest concern in retirement.

The trend towards helping younger relatives may mean in turn that more over-45s need to use their own property wealth in retirement, either as an alternative way to provide a ‘living inheritance’ or to boost their retirement income as their savings are depleted.

Clive Bolton, Managing Director, Retirement Solutions, Aviva UK Life, said:

“Pension freedoms have resulted in new decisions for people to make about how they use their life savings, and these findings suggest we are also starting to see a shift in attitudes towards wider use of property to help fund retirement, as well as providing a place to live. Property assets more than match pension wealth for many older homeowners, so it is sensible to consider bricks and mortar among the options to supplement their savings.

“However, later life brings a host of financial challenges and pressure points, which suggest it would be wise not to place all retirement bets on the house. The equity build up in people’s homes sounds like a lot, but considering that many can be retired for 20 years or more⁴ and often want to help their families as well as themselves, it’s easy to overestimate how far that money will take them. People need to consider if there is enough house to go around and build this into their retirement plans alongside their other assets.

“As well as boosting day-to-day funds, people also earmark their property wealth to help pay for care, leave an inheritance and help younger generations onto the housing ladder. There are also widespread worries about paying off mortgages to address in later life, along with a general desire to avoid needing to move from the place they call home.”

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Editor at large, SalfordOnline.com