Becoming a property owner for the first time is an exciting milestone in most people’s lives. However, in recent years it has become increasingly difficult for many first-time buyers to get onto the property ladder in the first place. Research by Halifax puts the average age of a first-time buyer in the UK at 31, just one year older than it was a decade ago (30 in 2010).
With house prices increasing and interest rates still relatively low, several first-time buyers are having to wait longer to save enough money for a deposit. With such an emphasis on people getting onto the property ladder, it’s unsurprising that 22% of current workers plan on using the value of their home to fund their retirement, following record house price increases according to research by Legal & General Home Finance (LGHF).
The findings indicate that a third of all people who aren’t currently retired (35%) own a property but have less than £10,000 saved in their pension pot. A further 22% of people hold no pensions savings at all. The significant number of small or empty pots, coupled with the 24% increase in median house price values in England and Wales since 2016, could be driving more people to consider using their property wealth to fund their retirement.
Based on current house prices in England and Wales, the average homeowner could access over £72,988 in equity release. Furthermore, people who aren’t currently retired expect to downsize their property (10%), sell their property (9%) or access equity via a lifetime mortgage (6%) to help fund their later life.
As more homeowners look to access money to support their retirement it’s worth bearing in mind that equity release isn’t for everyone. First of all – an equity release loan has to be repaid when the property is sold, with interest added to the debt. This has the biggest impact on those looking to leave money behind to support their loved ones as there may not be much inheritance left once the loan, plus interest, is paid back.
As first-time buyers are acutely aware getting financial support either from the ‘bank of mum or dad’ or from other family members is one of the main ways they can get onto the property ladder these days. If you intend to do the same for your children or grandchildren, you may want to consider alternative options when looking to boost your retirement income.