The Prudential report predicts a serious upheaval in the property market if the 'baby boomers' start trying to realise the wealth they have locked up in their homes in an effort to plug the 'pensions gap'. Prudential Research reveals that there is a shortfall of £70,0003 in the average pension pot, suggesting that even a move right to the bottom of the property ladder wouldn't realise the equity needed for a comfortable retirement. The report concludes that:
- An attempt to move home (by baby boomers) in order to release capital would be self-defeating
David Parry of Datamonitor, the report's author, commented: "The more people tried to sell-up, the more the difference between the selling price of the family home and the buying price of the retirement property would be reduced, forcing retiring couples to 'downsize' further and further. This would take them further and further away from their ideal retirement, to homes that were smaller, in worse condition or in worse locations than they either desired or may be suitable for people in retirement".
But, even if baby boomers seek to make up only some of their pension shortfall by downsizing, the study adds there will be:
An increase in the demand for smaller properties, typically those favoured by first-time buyers. As a consequence, prices of these homes will rise, while a glut of larger properties will mean prices fall in the traditional three and four bedroom 'family' bracket
First-time buyers will lose out. Cash-rich retirees will compete with those struggling to put their foot on the property ladder
The younger baby boomers, currently in their early 50s, who could be looking to release equity ten years after the first wave, will find the value of their existing homes has fallen, while the price of smaller properties has risen.
"This generation which is set to start retiring from next year has benefited most from spiralling house prices, but the problem is accessing this wealth" says Ali Crossley, Director for Prudential's Equity Release plans.
"If people simply sell up, our research predicts property mayhem. It could become a case of property 'snakes and ladders' as pensioners clamber down the ladder and larger family homes become more affordable to younger people".
Report findings:
- The research undertaken by Datamonitor reveals that 'baby boomers' have benefited enormously from home ownership
- And with their pension pots set to fall short by an average of £70,000, they will need some of their home equity to prop up other retirement savings
- The 'baby boom' generation currently holds almost £570 billion of home equity
- By 2019, when all of the 'baby boom' will have reached retirement age this is forecast to have grown to over £1,400 billion
- Within the age range, those who purchased in 1984 have on average experienced 378.2% increase in the value of their home
- Between 2005 and 2019, over 4 million baby boomers needing to access this value could try to sell their property
- £550 billion of property assets could be up for sale by 2019
Ali Crossley added: "The message is clear - planning to simply sell your home to release equity for living expenses in retirement is a gamble. The more people that do this the bigger the effect will be on the housing market, with many possibly losing out as the value of family homes fall. Our research shows that the average property could be worth £395,574 in 2019 and it makes sense for retired people to access this money without playing roulette on the housing market.
"Equity release plans, like the one provided by The Prudential, have the potential to provide improved lifestyle for those struggling financially in retirement, and without the need to sell the house and all the knock-on effects this could have. Everyone can take action to plan their retirement fully by seeking independent financial advice or by looking at other sources of information such as The Plan from the Pru."
