Most homeowners relying on home equity

Nearly three quarters – 71% – of the homeowners are relying on the value of their home instead of savings, Abbeys latest Savings Insight report has revealed.

At the same time, 60% of adults in Britain admit they dont save money regularly.

This equates to 28 million Britons not saving money for their future and 12 million UK homeowners potentially leaving themselves over-exposed to the property market as a means of providing for their old age.

The research, conducted for Abbey by the Future Foundation, follows a recent Pensions Commission report which warns that some 12 million people could end up poorer than the rest of society because they are not saving enough, and that they will either have to delay retirement for at least five years, pay more taxes or save more to plug a 57bn black hole in public and private pension provision.

For those on the property ladder, Abbeys research shows that 47% of homeowners now have a mortgage that extends into retirement, a figure that has almost doubled since 1992 when it was 26%.

With this in mind, it is unsurprising that 55-64 year olds are the least optimistic (24%) about using the housing market as an investment to fund their retirement compared with 47% of 18-24 year olds. This younger age group are also pinning more hope on the equity in their homes providing a pot of money to pay for any long term care (40% compared with 25% of 55-64 year olds).

According to Abbeys research, people retiring see an average 41% drop in monthly income when they stop work. For some people who reach retirement age with no long-term savings or income other than a state pension and the equity in their home, the prospect of a few more years’ work could be a necessity rather than a choice.

The research also shows that 80% of lower income households who own their own home are relying on it as an investment for old age compared with 60% of higher income families. With less money available to put away into long-term savings, its not surprising that lower income households are more exposed to the property market to provide for their future.

Angus Porter, Abbeys customer director says: Despite our findings, its not all doom and gloom.

“At Abbey, were seeing a big increase in the number of people opening savings accounts, but theres clearly a lack of saving for the longer term and the balance is all wrong.

“Our concern is that so many people rely solely on their home and the equity in it rather than a balanced mix of savings and investments to pay for old age and long-term care.

We understand that not everyone can afford to put money away in different pots for the longer term, but starting to put money away now on a regular basis could prove to be a real help later in life.

Porter adds: It is worth remembering that the value of your home might not always go up, as plenty of people who suffered from the negative equity fall-out from the housing market crash in the early 90s will testify.

“Future generations looking to stop working at retirement age should be wary of putting all their eggs in one basket and betting that the value of their home will provide enough to see them through old age and leave something for the family to inherit.