In Retirement Services said that equity release has an invaluable role in improving the quality of people’s lives in retirement, but warned that the one-in-ten people relying on using borrowing against their property to fund retirement may end up in penury.
It warned that in order to secure a pension of £20,000 from a family home at the age of 65, the property would have to be worth in excess of £1 million at today’s prices. Furthermore, there are only an estimated 89,000 properties worth over £1m, but the equivalent of some three million people planning on borrowing against property to fund retirement.
In Retirement Services believes it is entirely appropriate to consider equity in a property as a potential supplement to retirement income, and it can cite over 10,000 very satisfied clients that have done just that, but it is concerned that too many people are unrealistically viewing their main property as their retirement fund.
Equity release has grown in popularity and an increasing number of homeowners are using it as a way to fund one-off purchases; 47 per cent use it for home improvements, 15 per cent for a new car and 14 per cent for a holiday. For a quarter of customers it provides the ability to supplement their general finance, which is very much lifestyle enhancing and supplement pension income. However, In Retirement Services advises that this supplement should not be viewed as the base of retirement income.
Daren Carter, managing director of In Retirement Services, commented: “Equity release has changed the quality of life for tens of thousands of pensioners and we foresee it growing rapidly, especially as spiralling property prices over the last decade have left homeowners with over £1.2 trillion of wealth tied up in their properties. However, as a result, too many current homeowners are looking at the rising value of their home and believing that this alone can fund their retirement. Unfortunately, this fundamental misunderstanding could result in many people not funding a proper pension plan and failing to secure a proper standard of living at retirement.”
