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UK – Around 40% of the British public say their residential property investment will provide them with an income in retirement, according to a new report. This view is most entrenched among younger people.

Of those aged 25 to 34, 55% said that they would look to their investment in property to provide retirement income. This compares with 47% of those in the 35 to 44 age group and 40% of those between 45 and 54, according to research carried out for the report.

On average, 26% see themselves upgrading ‘by climbing the property ladder’, 16% would rent out properties, 15% by downgrading their home at retirement, while six percent would rent out a room And 19% plan buying on a property abroad to provide an income. But 60% said they would not be relying on property for an income – or ‘don’t know’.

The report ‘Safe as Houses’, written by Professor Merlin Stone of Bristol Business School and commissioned by major UK insurance group Prudential, says that too many people are risking their retirements by using their homes as their main pension source.

This is a high-risk strategy that could backfire on them leaving them in hardship, warned Stone, who argues that a balanced portfolio of savings, including property is needed for retirement provision.

Stone points out that there could be significant fall in property prices in different areas of the UK, with some predicting that overall prices could fall 20%, with the south east being hardest hit. A range of factors can affect property prices, not least a relaxation in planning constraints. In coming years, more homeowners will be hit by rising maintenance bills amounting perhaps to 10 – 20% of annual income.

“Even if property prices don’t fall, the ‘echo boomer’ generation – children of the baby boomers – have a life expectancy of 20 or so years when they stop work,” said Stone. “The echo boomers need to ensure they have enough liquid income to live their retirement to the full, and if they suffer from degenerative illnesses in later life, to provide the dignity they would desire. This can be difficult if you are equity rich but cash poor and have the vast majority of your wealth tied up in bricks and mortar,” he said.

The Prudential predicts strong growth for equity release schemes, enabling those over 60 to obtain either lump sums or regular income from raising a loan on which the interest is rolled up until the end of the loan and repaid from the final sale of the property. These schemes can increase the average retired homeowners annual income by around 38%, it is claimed.

Already, 150,000 in the UK have schemes, but Prudential reckoned this could grow to 84,000 new customers each year. Last year 850 million pounds was raised in such loans and this sum could rise up to five billion pounds a year over the next decade, said the insurer. Retired homeowners have 693 billion pounds (one billion euros) of equity in their homes.

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