Retirees raid equity to top up retirement

OLDER British homeowners are withdrawing nearly £6million worth of property equity every day to bolster their retirement spending.

Retired homeowners withdrew a record £2.1billion of housing wealth last year using equity release, according to figures from over-55s financial specialist KeyRetirement.com.

Equity release allows you to unlock the spare equity in your home and turn it into cash that you can spend today. Dean Mirfin, technical director at Key Retirement, said the equity release market has more than doubled in just five years: “This highlights how property wealth is making a huge contribution to retirement planning.”

The average customer raises £78,000 to boost their spending power, as savings rates continue to stagnate.

Yesterday’s shock news that Harvey Jones consumer price inflation has hit a two-year high of 1.6 per cent will only make life harder for savers.

Returns on cash are set to be further eroded in real terms as experts say inflation could top 3 per cent later this year.

Nigel Waterson, chairman of the Equity Release Council, said equity release is helping to top up pensioner incomes. “The market continues to become ever more competitive with growing choice and falling interest rates.”

Pensioners are using equity release to improve their homes, go on holiday, support younger family members, clear debt and fund everyday spending.

They have been helped by spiralling house prices, which allow them to raise even more money from their property

Official Land Registry house price data, published this week, showed prices rose 6.7 per cent in the last 12 months, taking the average UK home price to £218,000 in November.

Pensions technical director at Retirement Advantage, Andrew Tully, explained that without tapping into property wealth, the majority of people will not enjoy a comfortable lifestyle in retirement.

The company’s research shows the over-55s in England, Scotland and Wales have £365billion at their disposal via equity release, compared to just £75billion in defined contribution pension pots. “For most people, their property is worth far more than their pension,” he said. Tully added there may be tax advantages in using your spare equity to fund your retirement rather than a pension: “Pensions can now be passed on as a tax-free inheritance and retirees could leave their pensions untouched and generate income from their property or other savings instead.”

Equity release guarantees that you can keep living in your property for the rest of your life. The capital and interest is repaid when your house is sold after you and your partner either die or go into care.

The surplus falls into your estate and can be passed on to your loved ones in the usual way.

Savers are struggling as just 44 out of 669 accounts now pay more than the new inflation rate of 1.6 per cent, mostly fixed-rate bonds,

Finance expert Rachel Springall said: “With inflation expected to rise significantly during 2017 it is going to remain a dreadful time to be a saver.”

Kate Smith, head of pensions at Aegon, said rising prices hit pensioners on fixed incomes hard: “In under 20 years the value of £100 has more than halved.”