Equity release is still being considered by many over 50s who intend to use value in their property to fund retirement, despite the decline in house prices.
Research from retirement specialists LV= has found that while the over 50s believe their properties have lost an average £27,250 in value, 1.3 million over 50s are still planning to use the cash locked up in their home when they retire, for example through an equity release plan.
And they could have good cause for making these plans, as a recovery of 0.4 per cent in house prices in October offer homeowners renewed hope that their properties will provide an income in retirement.
Despite believing that they have lost an estimated total of £80billion in property value, only two per cent say that recent falls in property values will deter them from using it to subsidise their pension income through equity release, such as a lifetime mortgage.
The study also reveals the affect of the long-term increase in house prices on the pension savings behaviour of homeowners nearing retirement age, as 12 per cent have consciously saved less into traditional pensions because of the housing boom of the last decade.
Meanwhile, a further 13 per cent of homeowners said that the increased house prices put them in a predicament where they were forced choose between owning their own home and investing in a traditional pension because they could ill afford to do both.
Consequently, the house price plunge has had the most detrimental affect on homeowners within five years of state retirement age, as nearly a third of these believe their home has lost an average £29,000 in value.
To counteract the affects of falling house prices, 17 per cent of over 50s homeowners will be taking measures such as making home improvements to recoup the lost equity; 29 per cent will wait and home that property prices recover on their own; others will downsize and release equity in that way instead.
The reliance of over 50s on equity release to fund their retirement has also been enhanced by the 'double whammy' dealt to them by the recent financial crisis, with the value of their pensions and investments also being adversely affected.
Vanessa Owen head of LV= equity release, said: "In the decade leading up to the credit crunch, more and more homeowners saw their property as a potential cash cow to aid retirement. But in a matter of months millions of pre-retirees have seen both their property and pension fund values battered."
"For many their home is still a big part of their retirement income plans," Ms Owen added. "Trading down to a smaller house, or using a suitable equity release product to get funds out of your existing home, can therefore play a big part in helping to make people's retirement years more comfortable."
© Fair Investment Company Ltd
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