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Advisers can unlock the housing wealth safe for retirement


In a Treasury committee meeting last week Phillip Hammond said he was concerned about the savings ratio in the UK. When asked to diagnose this particular problem he noted that housing wealth plays an “extraordinary role” that is “bizarre” and “distortive”. The Chancellor added the UK will need to look at the role of housing wealth when it comes to saving.

This is an issue that needs to be addressed sooner rather than later. Recent research from Old Mutual Wealth and Tisa showed that people aged 50 and over were approaching retirement with a funding shortfall of £11,400 per year. These generations are increasingly looking to their houses to fill that hole in their retirement funding; when asked if the home should play a role in financial planning, 68 per cent of the 1,000 surveyed said yes.

However, relying on your home in retirement is difficult. It’s not just a pile of money sitting in an account ready to be accessed. It’s the place you live. The care home rules, recently raised here by Paul Lewis, illustrate the problem. Currently, the rules state that whether or not the government pays for an elderly person’s care is dependent on their wealth. The government will ignore the value of the resident ’s home as long as their spouse or partner – or any elderly relative aged 60 or more – lives in it. So the house is sometimes considered part of the person’s wealth, but sometimes it’s a necessity that cannot be disposed of, so it’s not.

To access their housing wealth to fund retirement most people have to sell and then buy a smaller home. This tends to be a complicated and generally not overly profitable endeavour.

Releasing equity

Another less popular option is equity release. Our research revealed that just 14 people out of the 1,000 surveyed would consider using equity release as a means of boosting retirement income. The results also showed that despite two-thirds claiming to know what equity release is, the majority could not answer basic questions on the subject.

There are multiple reasons for the lack of people engaging in equity release. Part of it is down to its sordid past. The public has heard horror stories of people leaving behind them huge amounts of debt that their children have to clear. However, times have changed and with the proper advice equity release can be a sensible option.

Equity release is also somewhat unpopular because of the emotional connection to a home, adding yet another layer of complexity to the issue. There is a pride in owning one’s home and a large portion of people work hard throughout their life to pay off mortgages. The emotional connection to the family home also makes older Britons less willing to explore the financial opportunities of digging into their housing wealth to help pay for their later life.

Bringing advisers to the table 

However, to some extent a large portion of the elderly already use their house to pay for care, albeit in an informal manner. Throughout the country older people are recipients of informal care, such as shopping, cooking or cleaning, from their family or friends. In many cases this is part of an implied contract where the house will be the reward for the on-going financial and social support. So in these cases the house is already being used as a financial resource.

With all these political, financial and even emotional complications when it comes to housing wealth it is clear that people need help. Today neither guidance services nor advice considers using the home as an asset in retirement. This needs to be addressed by government and the FCA swiftly so people have time to plan and can enjoy financial wellbeing in retirement.

The Chancellor is right to bring attention to the role of housing wealth in UK savings. The first step to addressing the situation is giving people access to advice on their housing wealth. Keeping money locked away in your home seems like a safe and secure way to save, but accessing that safe is a complicated endeavour.

Gower Wisdom is product director at Old Mutual Wealth



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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Mr Hammond is correct, for the last 20 years there has been a very generous taxpayer subsidy on Buy to Let mortgage interest which has encouraged over a million individuals to purchase property for their retirement rather than save through the pensions industry. However as everybody knows this subsidy is due to be phased out between April 2017 and April 2020, thanks to David Cameron and George Osborne. It will of course lead to a redistribution of wealth between the generations, which will grealy benefit the millennials in the years to come.

    There is no doubt that for the majority of the “millennials” they will need to save for a deposit to purchase property or meet mortgage payments as well as trying to fund for their retirement. However the future looks a lot brighter for them now due to the foresight of these two politicans.

    • not entirely convinced; the state has sold two million council houses at affordable rents, and now relies on the private rented sector which is now 5.4 million odd homes, about 20% of UK housing stock. Meanwhile owner occupied home ownership has fallen from 71% to 63% over the last 10 or so years. There are currently 1.2 million households (not people) on LA waiting lists for council houses, and another 600,000 on HA waiting lists. The B2L tax grab is easily avoided through incorporation.

  2. A business generates income, and in the UK a business is allowed to deduct costs before calculating taxes owed on the revenues. George Osborne decided that a property rental business of less than 12 properties (?) should not be treated as a business and now cannot claim expenses, but another business with 13 properties or more rented CAN claim these expenses. (1)In what way is behaving like a normal business “a very generous tax subsidy”? (2) Why are people being taxed according to the number of customers they have, unlike any other business? (3) How does removing investors who refurbish properties before letting them help 1st time buyers who cannot afford the capital cost of such repairs, due to low salaries or tight limits by bankers/government on what they can borrow? The new “penalties” for owning up to 12 properties now discourage owners from refurbishments (they cannot claim back the costs) and prompt rent increases to cover the higher taxes, reducing renters ability to save to buy a property. Government policy is a mess, and badly needs sorting out.

  3. Mr Gorton you can always transfer your properties into a limited company then you will have a business. The Government’s BTL policy makes perfect sense in that amateur landlords will no longer be subsised by the taxpayer and the millennials will at last have an opportunity to purchase as property prices freeze or start to fall as many landlords off-load their portfolios. This will rebalance the wealth between the generations which has greatly favoured the baby boomers since BTL mortgages were introduced. A much fairer society has been created at the expense of amatuer landlords which were introduced by the Labour Government in 1997 in order to provide housing for the mass immigration they encouraged. This of course was political, in order to change the balance of the electorate in their favour.

    The clever BTL investors have already sold like Fergus & Judith Wilson or are in the process of doing so whilst they can retain a profit. However those investors that hang on too long will not only make an annual loss on income as the tax subsidy is removed, they will also start to make capital losses. A new generation of young homeowners and Tory voters will be created by David Cameron & George Osborne BTL policies which will benefit millions of young people in the future.

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