An extract of our equity release story has been featured in the Daily Express, Money Section and Financial Times. By Harvey Jones who handles the section also writes on personal finance for Middle East title, The National.
Personal Finance News
MILLIONS of Britons are planning to raid their property wealth in retirement as their pensions are not large enough to live on, but experts warn many risk coming unstuck.
The over-50s increasingly hope to cash in on years of rising property prices either by investing in buy-to-let, downsizing or unlocking capital through an equity release scheme.
However, relying on property to fund your retirement could be perilous because of stagnating house prices, the tax crackdown on buy-to-let, hefty stamp duty charges and rising interest rates.
HAPPY AT HOME
An Englishman’s home is increasingly his pension with 3.9 million over 50s planning to use property to fund retirement.
One in three says their pension will not be enough and many believe property is a more reliable investment, according to research from mutual society OneFamily.
Property prices have increased by 300 per cent over the last 25 years, leaving many over 50s with plenty of equity in their home.
They own an estimated £2.3trillion of the nation’s total £4 trillion property wealth, according to the Office for National Statistics, with an average property value above £225,000.
Buy-to-let remains popular and amateur landlords say they expect the rent to account for a third of their retirement income, while 1.8 million plan to downsize to a smaller property.
Others plan to unlock an estimated £37 billion of capital from equity release lifetime mortgages, withdrawing £90,000 each on average.
OneFamily managing director Nici Audhlam-Gardiner said many homeowners see their property as a “cash cow” to fund their retirement: “With dramatic house price rises, investing in property seems a wise option, particularly as income from pensions, both state and otherwise, begins to decrease.”
She suggested people take financial advice to get their retirement planning right.
STAMP IT OUT
However, other experts have warned that relying on property to fund retirement is a risk.
It is harder to make money from buy-to-let as a Treasury onslaught shrinks many of the tax breaks, Kate Davies, executive director of the Intermediary Mortgage Lenders Association, said new landlord purchases are falling and large numbers are considering whether to exit the market: “The loss of tax relief in particular has put pressure on landlord finances, prompting many to reconsider their investments.”
Paul Smith, chief executive of estate agent Haart, has called on the Treasury to make life easier for older people looking to move to a smaller home by cutting stamp duty for downsizers.
The cost of moving home eats into the profits and Smith said: “The Treasury should consider extending the first-time buyer stamp duty cut to downsizers, which should also help to free up larger family homes.”
Growing numbers of homeowners are unlocking capital from their property in retirement but Hoxton Capital Management managing partner Chris Ball warned that if interest rates rise equity release could be costly.
With a lifetime mortgage the interest on the capital you unlock rolls up and is paid by selling your home after you die.
Ball said: “Releasing £50,000 could cost homeowners £83,000 in interest and other charges over 20 years at today’s average equity release rate of 5.18 per cent.”
Dean Mirfin, chief product officer at Key Retirement, said equity release should still work for many because the value of their property is also likely to rise over such a long period.
Reputable equity release schemes contain a no-negative equity guarantee, so you cannot owe more than the value of your property.
Most experts agree the best way to save is through a pension and tax-free investments such as Isas, but for many it is too late to build a big enough pot.