Wealth accumulated via mortgage repayments hits record £62.7bn

Wealth accumulated by homeowners via mortgage repayments increased from £40.7 billion a year in 2005 to £62.7 billion in 2016: the highest figure since records began in 1999. This far exceeds personal pension savings outside the workplace and compares to estimated total contributions to UK private pensions of £70 billion in 2012 (the latest year where data is available).

Total homeowner equity in England alone reached £2.6 trillion last year, with 69% (£1.8 trillion) belonging to households aged 55+. Based on demographic projections and modest house price growth, this age group’s housing wealth is forecast to nearly double to £3.6 trillion in the next twenty years (2036).

The report also illustrates that a DC pensioner with contributions of 8% throughout their working life – soon to be the minimum required under auto-enrolment – can expect to retire with a pension that provides only 15% of their final salary. This is just a fifth of the pension an identical worker in a DB scheme would enjoy.

The average worker potentially accumulates twice as much wealth via mortgage capital repayments each year than they contribute to their pension (£4,480 vs. £2,240). Housing is also a more commonly held asset with 17.7m owner-occupiers compared with 10.3m employees with a pension.

The Equity Release Council says that for more people to benefit from equity release, the government and industry must work together to help normalise equity release as a "socially acceptable vehicle for retirement finance", by tackling the lingering stigma attached to debt in later life.

It also urges the next government to abandon the ‘semi-detached’ attitude towards equity release that has been held by previous governments. In calling for government to go further in supporting industry growth, The Council calls for government to establish a dedicated policy team committed to promoting equity release as a safe product that should be on all homeowners’ retirement planning checklist as they approach later life.

Nigel Waterson, Chairman of the Equity Release Council, commented: “A major consequence of reforms to the retirement landscape is that pensions are now fully realisable and inheritable assets, just as other financial assets and property are. This makes it possible for retirees to plan their finances by considering all their assets, including their home. For many homeowners, the logical conclusion of a more structured approach to retirement planning will be outcomes that include the release of housing wealth to meet a range of financial needs.

“Increasing product innovation, competition and flexibility has seen the equity release sector ‘rebooted’ with great potential to build on current growth.  As this report sets out, there are important roles for industry, government and regulators to play in the next stage of the market’s evolution, so that the UK’s ageing population can take advantage of their considerable property assets to enjoy a more financially comfortable retirement.”

Steve Wilkie, managing director of Responsible Equity Release, added: "Changes in the way pensions are treated for tax-purposes could open the floodgates for more people considering their home as part of their retirement planning.

"It's taken a while for people to get their heads around exactly what pension freedom means, but we are already starting to see the positive impact on the equity release market.

"Equity release lending is up 77% in the first quarter of this year as people cast off the financial shackles of the old pension regime and open their eyes to the benefits of equity release as another tool to achieve their retirement ambitions.

"The goal for many is to live comfortably in retirement; not to outlive their money and leave a substantial legacy to their loved ones. Now that a pension has been transformed into an asset which can be passed down, retirees can take a more holistic view of their financial situation.

"There has always been this mindset that you can't count the house you live in as a potential source of retirement income, that the only savings you have are those in your bank and pension. It is starting to register that anyone who owns a home bought with a mortgage has been saving throughout their lives. The difference is the money hasn’t gone into a bank but into bricks and mortar.

"Once this change of thinking happens, we are likely to see more people act on it and tap into the accumulated wealth in their homes."