MILLIONS RELY ON HOMES TO RETIRE

Wednesday April 25,2007
By Holly Thomas
RISING debts and a lack of savings will force millions of people to use the value of their homes to make ends meet in retirement, a shock new study argues.

Underfunded pensions, living longer, low annuity rates and soaring personal debt all mean older people will have little choice but to sign up to equity release schemes, says analyst Defaqto.

The plans allow homeowners to take a cash lump sum out of a home but keep the right to live in it rent-free until death.

“The growing demand for equity release products will increasingly be driven by debt consolidation,” said David Black, Defaqto’s head of banking, the report’s author. “The current trend for interest-only mortgages with no apparent capital repayment will exacerbate future retirement debt issues.” A separate report out this week revealed that 10 million over the age of 45 had no pension provision.

The study, by Abbey, said this included a staggering 4.5million over-55s who had made no provisions for retirement. A substantial number planned to work through retirement because they would not have enough savings.

Tom McPhail, head of pensions research at Hargreaves Lans*down, warned equity release was an expensive and inefficient way to use a home’s value, and retirees should not rely just on property.

“In terms of asset diversification, betting your retirement security on property is high-risk. While houses may continue to prove a good investment, prices can crash, so property should not be relied on alone,” he said.

Black said: “The UK equity release market is entering a crucial stage and will play a greater role in retirement planning. It clearly won’t suit everyone, and people should explore alternatives, but it will increasingly provide a solution for many.”

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