How a house price crash will shatter retirement dreams for millions

How a house price crash will shatter retirement dreams for millions

Crashing house prices risk wreaking havoc on homeowners’ long-term finances, as their lifetime resilience will fall seven times longer than that of those who rent in retirement for those banking on property wealth while retiring seven times longer than those who rent.

The greater the fall in house prices, the more significant the projected damage to retirement funding, as those who hoped to release equity from their homes to finance later in life see their returns possible falling.

Experts warn that retirees must be prepared to accept that they will not have the funds for the lifestyle they had hoped for.

Modeling the impact of a house price crash scenario, where prices fall by 18pc, investment firm Hargreaves Lansdown found that average resilience in later life would fall – as working-age households are on track to for moderate retirement – ​​among homeowners seven times longer. than renters in the coming year.

Although homeowners have a better resilience score later in life than renters, falling house prices will take a far worse hit to their long-term financial prospects, providing even more gloom for those who have had to go grappling with skyrocketing mortgage rates and other living costs. .

Sarah Coles, of Hargreaves Lansdown, said: “House prices are set to fall in 2023, which threatens to strain our finances. People with mortgages will continue to rely on the short-term shock of higher interest rates when they are hit with the devastating news about the damage to their long-term financial resilience.”

Gary Smith, of Evelyn Partners, told the Telegraph: “For many people, part of their retirement strategy is to downsize or engage in equity release to supplement the state pension and any other pension they have collected, so sure this will happen. impact on their retirement plans, and falling house prices may not necessarily lead to their planned lifestyle.”

One in seven of those over 50 will be forced to sell or release equity from their homes as a result of the cost of living crisis, according to the LiveMore Barometer, an indicator of seniors’ financial priorities.

For the 15 pc of those surveyed by LiveMore, a lender to people over 50, saying that the biggest financial priority was to raise more money to live on by reducing or releasing equity, and that returns would continue to fall in house prices.

Capital Economics has forecast a 12pc fall in house prices this year, with Halifax suggesting a more conservative estimate of 8pc.

The results were recently obtained as part of the Hargreaves Lansdown Savings & Resilience Barometer, which measures financial resilience out of a score of 100. The current average resilience score for later life planning is 49.1 out of 100 – but a crash would see house prices fall by 1.4 point among homeowners, compared to 0.2 points for renters.

The average drop in Gen Z and Millennial homeowners’ scores was nearly three times steeper than their Baby Boomer counterparts—down 2.2 points compared to 0.8.

Mr Smith said many may consider opting out of workplace pension schemes to quickly increase their income to meet urgent living costs, and to improve their later life funding.

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