If you think about the problem inherent in the UK's retired population having too much property and not enough pension, there is an obvious solution: equity release.
People get old and they run out of cash, but as they can't bear the thought of raising that cash by moving, it makes sense to borrow against the house and stay.If you have spent most of your life paying for something, it seems a bit rubbish to have to leave it just when you have the spare time to enjoy it.
But while equity release is a good idea in theory, it often falls down in practice mostly because it offers providers yet another marvellous way to exploit the mathematical incompetence of the UK population one they grasp with both hands.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
So here's a thought. The government has made it clear that it has one policy and one policy only: making sure that we get artificial growth via seemingly absurd policies the only result of which is to push house prices up. So, why not solve a whole load of problems at once by introducing some kind of state home reversion policy? Anyone who can't afford to live, or perhaps to pay for care, can borrow against the value of their home from the government at a reasonable rate of interest.
On their death, the home reverts to the state, which can then either keep it (solving the shortage of social housing problem too) or sell it back into the market, taking any profit their manipulated market offers up along the way.
This wouldn't be an entirely new system. Already, all sorts of councils offer deferred payment schemes with people's property as the security when they need to go into long-term care. Under this system, your house is valued but not sold, the council pays your care fees, and you then pay back the debt on the sale of your house.
It isn't officially equity release, but the effect is the same. A national scheme along these lines that could be offered to people whether they are going into care or not might be worth thinking about.
-
Renewable investing: who is paying for the green revolution?Investors in renewables have not been rewarded, says Bruce Packard. Will they fund the government’s plans?
-
UK house prices rose 4.6% last year – where did property prices grow most?House prices increased by 4.6% in 2024, giving an average property price of £268,000. Where did property prices grow the most and will they continue to rise this year?
-
House prices to crash? Your house may still be making you money, but not for much longerOpinion If you’re relying on your property to fund your pension, you may have to think again. But, says Merryn Somerset Webb, if house prices start to fall there may be a silver lining.
-
Prepare your portfolio for recessionOpinion A recession is looking increasingly likely. Add in a bear market and soaring inflation, and things are going to get very complicated for investors, says Merryn Somerset Webb.
-
Investing for income? Here are six investment trusts to buy nowOpinion For many savers and investors, income is getting hard to find. But it's not impossible to find, says Merryn Somerset Webb. Here, she picks six investment trusts that are currently yielding more than 4%.
-
Stories are great – but investors should stick to realityOpinion Everybody loves a story – and investors are no exception. But it’s easy to get carried away, says Merryn Somerset Webb, and forget the underlying truth of the market.
-
Everything is collapsing at once – here’s what to do about itOpinion Equity and bond markets are crashing, while inflation destroys the value of cash. Merryn Somerset Webb looks at where investors can turn to protect their wealth.
-
ESG investing could end up being a classic mistakeOpinion ESG investing has been embraced with enormous speed and zeal. But think long and hard before buying in, says Merryn Somerset Webb.
-
UK house prices will fall – but not for a few yearsOpinion UK house prices look out of reach for many. But the truth is that British property is surprisingly affordable, says Merryn Somerset Webb. Prices will fall at some point – but not yet.
-
This isn’t the stagflationary 1970s – but neither is it the low-rate world of the 2010sOpinion With soaring energy prices and high inflation, it might seem like we’re on a fast track back to the 1970s. We’re not, says Merryn Somerset Webb. But we’re not going back to the 2010s either.
