29th April 2013
A think tank has urged the government to provide a ‘financial MOT’ for Britons when they reach 50 to enable them better prepare for retirement.
The idea was touted in a paper by The Smith Institute on equity release, where homeowner exchange some or all of the value of their home for cash. Hanover, a firm which provides affordable housing for the UK’s retirees, commissioned the research.
The Smith Institute also says that co-branding or endorsement by housing associations could help the equity release sector overcome the poor image it acquired during the 1980s. During this period many of the deals sold to retirees were of very poor value, leaving many with very little income or even in negative equity.
The think tank argues many ‘asset-rich, income-poor’ older homeowners are living in ‘non-decent’ homes they cannot afford to refurbish or adapt to meet their changing needs as they age.
Co-author of the paper and director of The Smith Institute, Paul Hackett says: “Future generations of low income retired homeowners will increasingly struggle to meet the costs of repairs and adaptations for health care needs. To avoid unnecessary hardship, homeowners must plan ahead, including better utilisation of their housing wealth. The Government should help by offering a financial MOT for everyone at the age of 50 and on retirement.”
Such a programme, it says, would focus particularly on housing assets – given their importance relative to other wealth for many older people. The paper says housing associations could also adapt the shared ownership format for retirement housing by using ‘reverse staircasing’ – allowing homeowners to sell back part of their homes to fund care in later years. It adds such a scheme would also allow right to buy leaseholders, many of whom are on low incomes and excluded from conventional equity release products, to pay reduced rent on the part sold to the housing association instead of the interest normally paid on such products. But the institute said a survey of several housing associations revealed little enthusiasm for equity release in the short term.
Hackett adds: “We face a crisis in funding housing for older people. This means we will have to unlock more of our housing wealth – either through the tax system or individuals releasing equity. The question is not whether it can contribute to housing and care but how much and in what form? Housing associations will need to play their part, especially for retirement homes for homeowners.”
Hanover chief executive Bruce Moore adds: “This paper lays out a challenge to social housing providers. Hanover takes seriously its call for housing associations to develop equity release products and recognises the exciting potential of ideas such as reverse stair-casing.”