UK pensioners sitting on £762bn despite property crash

The Prudential’s Equity Release Index recently found that homeowners aged 65 or over have £726bn of equity in their homes.  Of course as house prices continue to fall this figure is decreasing.  I wonder if there’s any connection between this fact and the recent increase in equity release business in the UK?

SHIP (Safe Home Income Plans) – the trade body that represents more than 90% of the equity release market in the UK – announced on 16 July this year that equity release business volumes produced by its members in the second quarter of this year had increased by 14% over volumes in quarter one. A total of £275.7 million of equity was released by SHIP members in the second quarter, 14% higher than the £242.7 million released in the first quarter.

So how far will house prices fall?  Nobody knows but estimates from those who dare to forecast seem to range from around 30-70%.  I wouldn’t be surprised by 50%.  Rental yields are a good way to value property and they are incredibly low.  In order for yields to recover we need either (or both) prices to fall and rents to increase massively.  I don’t think rents are coming up any time soon since: (a) many people have sold  recently and opted to rent while the market is suffering so there is no shortage of rental property; and (b) the economy as a whole is suffering thus reducing available cash in renters’ pockets.  Therefore prices must fall further and there’s certainly plenty of evidence for this.  Today the bank of England announced that the number of new mortgages approved for home buyers fell in July to just 33,000 – down by 71% on a year ago.

More to the point for those who already own property, how long will it last?  When property crashed at the end of the 80s bubble the market took 5 years to hit the bottom and another 5 for prices to recover to pre-crash levels.  But it could be worse – Mr Darling told a newspaper at the weekend that Britain was facing its worst economic crisis for 60 years.  Maybe he’s just lowering our expectations so we’re not disappointed by his performance later.

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