New report calls for advice reform to unlock £23bn in retirement housing wealth

Half of UK households (51%) are expected to require housing wealth to support their spending needs in later life and retirement – unlocking over £23 billion, in today’s prices, each year by 2040 - according to new modelling by Fairer Finance. The independent consumer group also forecasts that this shift could deliver a £21 billion boost to the UK economy each year.

Based on levels of pensions and savings alone, almost four in ten (38%) future retirees are heading for an income below the recommended minimum living standard. Yet, on average people in the UK hold more housing wealth than pension wealth, highlighting a mismatch between resources and retirement funding strategies.

Report calls for urgent action to break down barriers

Fairer Finance’s report calls for urgent action from government and the FCA to break down the barriers that prevent older homeowners from accessing the equity in their homes, and to integrate housing wealth into mainstream retirement planning alongside pensions.

The report, commissioned by the Equity Release Council, considers how later life lending can support more consumers in retirement and the barriers to unlocking housing wealth through downsizing.

The report suggests five important policy recommendations:

1. Increase housing supply: Build more suitable and desirable homes for downsizing located in the communities where people in later life wish to live.

2. Reduce stamp duty: Cut stamp duty for older people downsizing to encourage mobility and free up larger homes.

3. Normalise the use of housing wealth to maintain living standards in later life: MoneyHelper and Pension Wise should embed housing wealth as a central part of later life advice and guidance. Government and public agencies should invest in public information campaigns to break down the stigma and normalise the use of housing wealth in retirement.

4. Create a single financial view: Government and regulators should develop a personalised service for consumers to see their pension and housing wealth in one place.

5. Reform financial advice: The report calls for the FCA to reform the regulation around later life advice, to break down advice silos and ensure all consumers are supported to maximise the use of all their assets as they approach retirement.

On point five specifically, Fairer Finance says the FCA should:

• Ensure that equity release advisers are obliged to consider all forms of later life lending.

• Build more explicit consideration of housing wealth into the FCA rulebook, such that financial advisers assess the role that housing wealth may play for customers in funding their retirement.

• Ensure that advice on mainstream mortgages to people from the age of 50 onwards explicitly considers retirement planning, including later life lending options. This may be through referring people to retirement dashboards, midlife MOTs, or other professional advisers which bring together all sources of retirement wealth.

• Allow for targeted support to assist consumers in considering their use of housing wealth as they plan for retirement (whilst ensuring that equity release remains an advised sale).

• Use the levers of the Consumer Duty to ensure the UK has a competitive later life lending market, which offers fair value to consumers and creates the conditions for product innovation. In advice markets, Fairer Finance says the FCA should use the Consumer Duty to eliminate product bias – and ensure that consumers are supported to achieve the best outcomes for their needs, regardless of which part of the advice market they are engaging with.

James Daley, managing director at Fairer Finance, commented: “It’s an inevitability that more people will need to rely on their housing wealth in retirement – and our new research shows the scale of the problem as well as the opportunity. The combination of smaller pensions, increased longevity and rising care costs threaten to create a perfect storm which will leave millions of people unable to maintain their living standards in later life.

“But with around 75% of the population owning a property as they reach retirement, many people are sitting on – and sleeping in – a significant store of wealth. As things stand, there are a number of social, economic and regulatory barriers which stop housing being part of the mainstream retirement planning conversation. For those who want to downsize, there is a lack of suitable and desirable retirement housing. Whilst when it comes to borrowing in later life, the silos in regulated advice markets mean many people are not being presented with all their options. If we’re to head off a later life funding crisis, policymakers need to start taking action to bring down these barriers now.”

Jim Boyd, chief executive of the Equity Release Council, said: “Fairer Finance forecasts property wealth taken in the form of later life lending could inject £21 billion into our economy each year from 2040.  This substantial amount has the potential to act as a real economic stimulus supporting businesses and improving the living standards and spending power of our rapidly ageing population. 45,000 UK jobs are already directly funded through money released from bricks and mortar – the growth of later life lending can potentially take this to another level.

“Whether an older person speaks to an equity release adviser, a mortgage adviser or a financial adviser, how they want or need to use their housing equity should be part of the conversation. Today’s report challenges us to develop a system that treats housing wealth as a core part of retirement planning, removes regulatory barriers and gives people the confidence to use it wisely.”

Lorna Shah, managing director of retail retirement at L&G, added: “This report from Fairer Finance highlights the increasingly important role that property wealth will play in helping many people achieve a rewarding retirement. 
 
“At L&G, our own research also indicates that equity release will become an increasingly mainstream source of income for retirees, in part due to the growth in property wealth.1
 
“As Fairer Finance sets out, the financial requirements of those in retirement will vary at different stages of their lives. These needs can range from paying off an existing mortgage, gifting to family, or making home improvements. Our research also highlights the increasingly important role equity release is expected to play in care-related expenses in the future.2
 
“For many, releasing equity from their home could be one of the most significant financial decisions made in retirement. Financial advice is critical in helping homeowners take a balanced, holistic view of the options available to them.”