Older homeowners tapping into their housing wealth are ignoring their future care needs in favour of funding holidays, home improvements or helping children or grandchildren on to the property ladder, research has found.
Whitehall’s policymakers are increasingly interested in how the UK’s ageing population could use housing equity to fund the cost of care bills in later life.
Yet among a group of nearly 1,000 over-60s questioned by the London School of Economics, not a single respondent who had accessed their housing wealth said they planned to use the money to pay for their own care needs.
Instead, the most common reason to remortgage or use equity release was to carry out home improvements, or buy “treats” like a cruise or even a second property.
Kath Scanlon, an LSE research fellow and co-author of the study, said there was only one respondent who mentioned care costs — but this was not for themselves, but their mother-in-law.
“If the government wants the money to be used in this way, there has to be some framework that channels people’s thoughts and decisions and there has to be an incentive,” she said. “It’s unrealistic to expect that people will, on their own, make some kind of provision for care just in case they need it.”
Commissioned by the Family Building Society, the study surveyed customers of the lender as well as conducting interviews with other lenders, intermediaries such as mortgage brokers and policymakers including the Treasury.
Customers questioned in the survey were over 60, mostly male, married, retired and located in the south of England. Some had already tapped into their housing wealth; others had yet to do so.
Those looking to free up money from their homes in later life have a growing number of options for tapping the equity in their property, but the main ones are remortgaging and equity release.
In the past, banks and building societies were reluctant to offer remortgage deals to those in retirement but have relaxed their rules in recent years.
Equity release allows older people to withdraw equity from their homes while continuing to live there, with the interest typically “rolling up” until the borrower dies or moves into residential care, the property is sold, and the debt and interest repaid.
More than two-thirds of respondents said they saw the value of their home as part of a long-term financial strategy, and the report said these forms of later life lending could be an efficient way to use housing wealth to smooth spending over the course of a lifetime.
However, the researchers found borrowers had a very limited understanding of the range of options available to them — a situation that has been exacerbated by the fragmented market for financial advice.
Those qualified to advise on traditional remortgaging were unlikely also to advise on equity release, the report found, and vice versa. Advisers were even less likely to be able to place their recommendations about home loans in the context of a borrower’s broader investment, pension or inheritance tax wishes.
“There’s a danger that the product you end up getting depends on who you go to ask for advice,” said Ms Scanlon.
The report also warned that borrowing money against a property in “young old age” (around the age of 60) could leave people with little equity to fall back on in “old old age” when they may need to use it for their care.
The situation would be worse if house prices fell, the authors added, since this would reduce opportunities for withdrawing more money later in life.
Furthermore, relying on housing wealth to finance retirement plans may not be a sustainable financial strategy for younger generations of homeowners.
The current older generation of homeowners has experienced a historic surge in house prices that market experts think is unlikely to be repeated any time soon.
“There are also concerns that this is the lucky generation,” the report said. “Those who follow may well have higher debts (of all kinds) at retirement, and less secure future income.”
