Homebuyers could end up £326,000 wealthier than those who rent: ERC

The report highlights how the benefits of homeownership are set to become even more critical to people’s financial security and wellbeing in later life, but also warns of lifelong inequality for those who are unable to get onto the property ladder.

While many homeowners believe having a mortgage is becoming more acceptable in later life and are interested in unlocking cash from their home as they age, the report found more than half (54%) of people who have not yet bought a home think it is “unrealistic” they ever will.

The analysis shows continuing low interest rates and investment returns will make it very challenging for future retirees to build an adequate income, as people face more individual responsibility to save for longer lives in a less secure job environment.

For every £1,000 the average employee earns in their final salary before retiring, they can expect just £150 from a defined contribution pension compared with £670 from a defined benefit scheme.

At the same time, today’s low interest rates make homeownership more affordable than renting for anyone who can fund a deposit. The typical homeowner can gain a financial advantage of £326,214 over thirty years compared with renting by making lower monthly payments and building up their housing equity, even before any potential house price gains are factored in.

One in three homeowners (32%) see their mortgage as being like an investment in their future because they are building up an asset over time. Nearly half (48%) of those with an existing loan also say they can save more because their payments are cheaper than renting.

The report underlines how homeownership underpins greater financial security in later life, by building an asset that can be realised through downsizing, using a lifetime or retirement mortgage or a combination of both.

More than two in three (68%) homeowners say they feel confident about their financial future, compared with just 45% of adults who do not own their own home. The majority (59%) of people in their thirties feel their retirement prospects will be better if they are homeowners.

Two in five homeowners (40%) also believe it is becoming more acceptable to have a mortgage in later life, while significantly more (57%) are interested in accessing money from the value of their home as they age. This includes nearly three in four (74%) homeowners in their thirties.

David Burrowes, chair of the Equity Release Council, said: “Property and pensions form the bedrock of financial security for most people, but the rules of engagement have changed substantially over the last 30 years. People today are living and working longer with responsibility to fund their later years and will need to think differently about their financial decisions at different life stages.

“For people who manage to buy their own home during their working lives, the extra confidence and flexibility this provides will be even more critical to their financial wellbeing than it is today. While today’s homebuyers are borrowing larger sums for longer, they are also building considerable equity which can help meet future needs for themselves and their families.

“Perceptions of debt in later life are changing, and property wealth is transitioning from having been the ‘emergency fund’ to an enabler of life ambitions and financial goals. This fundamental shift means products, advice, policy and financial education must also keep evolving, so more people can savour the experience of longer lives.”