Older home owners in UK underestimate the value of their home by almost £90,000

Older home owners in the UK underestimate what their property is worth with 60% not having it valued since first buying it, new research shows.

It leaves many over 55s with far greater housing wealth than they realise, which could be used in later life to help fund a more comfortable retirement, according to the research from the Equity Release Council.

The study found that the average UK home owner aged 55 and over paid £100,756 for their existing home. Having lived there for an average of 17 years and 10 months, they now estimate it is worth £257,584.

This equates to an overall house price rise of 156%, leaving them with an extra £156,828 of equity even before mortgage repayments are accounted for. However, the  analysis suggests even this may underestimate the individual housing wealth as according to the Office for National Statistics (ONS), the average UK house price has risen by 244% over the last 17 years and 10 months.

Having originally been bought for £100,756 at the start of this period, the average property among over 55 home owners could therefore have a value of £346,861 today, almost £90,000 more than they estimate.
By examining market trends, the research suggests people's tendency to misjudge their housing wealth may be linked to low awareness of how price rises have affected the property market in the region where they live. Even those who have had their property valued since first buying it did so four and a half years ago on average.

Asked to consider the role of pension savings and property wealth in funding later life, the research suggests that 80% of home owners aged 55 plus would consider using housing wealth to get the most from their retirement.

Some 31% said that they feel the best solution is to use their pension savings before their property wealth, 10% said they would prefer to use their savings and property wealth at the same time and 9% said they would rely solely on property wealth or use it before their savings.

This leaves 11% who want guidance or advice on the best option for them, while 19% say they do not care which approach they take so long as it gives them the best outcome. The remaining 20% feel the best outcome for their retirement will rely solely on pension savings.

The research also found that 38% think unlocking money from the value of their home is likely to benefit them financially in later life, while another 29% are unsure.

Among those who would consider using their housing wealth to help pay for retirement, downsizing is the main preference, cited by 42%. However, 22% would prefer to stay in their current home and use a lifetime mortgage to release some equity. The remaining 36% said they are open to either option based on their circumstances.
‘It is no secret that the property market has been kind to many home owners, but it is remarkable to see how far people underestimate the potential size of their housing wealth, which puts the average pension pot in the shade,’ said Nigel Waterson, chairman of the Equity Release Council.

‘At a time when savings are scarce and retirees face an uncertain financial future with the end of generous final salary pensions, these findings prove just how important it is that property wealth plays a role in financial planning for later life. They also show a large number of people are looking for help to decide how using their savings, equity release or downsizing can work best to meet their individual needs,’ he explained.

‘It is vital the Government acts on the Treasury Select Committee's recommendation to include housing wealth within its pensions guidance service. It must also work with industry and regulators to improve access to advice, so people can consider all the options open to them in retirement and choose the one best suited to their circumstances,’ he added.