How do households view their housing wealth?
Published: 2 February 2017 | Author: Bob Pannell
With so much being written about inter-generational inequalities of income and wealth, it is easy to imagine that masses of older households are feathering their retirement years by unlocking housing wealth to supplement their already generous pension entitlements.
The truth, as is often the case, is rather less colourful.
Take-up of lifetime mortgages has increased, and considerably, over the past few years, but from a pretty low starting point. We don’t yet have final figures for 2016, but our records show 24,000 borrowers taking out £1.5 billion in the twelve months to September. This represents just 0.8% of the total value of residential mortgage lending!
While it is true that more firms have begun to offer lifetime mortgages and other equity release products, many of the high street and other mainstream lenders are interested but wary of the reputational risks associated with lending to older households.
So, what do people think about tapping into their housing wealth?
The rest of this article provides a snapshot, based on a few questions included in the CML’s tenure aspirations research that YouGov undertook in the middle of last year.
The survey’s findings
Nearly 2,000 respondents were asked whether it makes sense for home-owners to release some of the value of their property to provide additional income or cover their living costs in their later years.
Views on this were split almost equally, with more than a quarter of respondents undecided.
Generally speaking, those who are not home-owners are more positive about unlocking housing equity in this way than home-owners, that is, than those who may find themselves in a position actually to be able to do so.
Young home-owners (those under 35) come across as fairly sanguine about unlocking some of their housing wealth several decades into the future.
But the views of older home-owners are not straightforward. Some of this reflects the fact that the views of outright owners and those still buying with a mortgage differ quite a bit.
This is perhaps most relevant among 65 to 74-year-olds. Here, those who still have a mortgage (either because they are still paying one off or because they are already drawing down some housing equity), are more disposed to using some of their housing wealth. By contrast, most outright owners do not view it as a sensible thing to do. Outright owners will represent the lion’s share of all home-owners in this age cohort and this, in turn, underpins the strongly negative figure shown in Chart 1.
As we can see, such reticence falls away with the oldest age cohort, and those who are aged 75 or older are noticeably more positive about unlocking housing equity.
Chart 1: Those believing it sensible to release housing equity, net percentage balance by age
Our survey also asked about the likelihood of using some housing wealth, to supplement pension income or to finance large expenditures, at or near retirement.
Generally speaking, relatively few home-owners had definite plans to do so – 4% overall, and the figure was only a few percentage points higher among retirement age respondents.
Chart 2: Likelihood of releasing housing equity near retirement, by age
As Chart 2 shows, people show considerable uncertainty about their likely future behaviour, and especially when this is several decades into the future. Even among the retirement age cohorts, a quarter of respondents are unsure of their plans.
As we look across older age groups, our current snapshot suggests that a confidence about unlocking housing equity progressively gives way to a growing resolve not to do so.
But, with the exception of the oldest age cohort, these views are not set in stone. As pension arrangements become progressively less generous or complete for those approaching retirement in the future, we are likely to see both growing demand for unlocking housing wealth and opportunities for mortgage lenders and other providers to develop products that address the financial needs of older households.
These and other key topics relating to older households will be presented and discussed at the CML’s extending lending event on 1 March.