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Pensioner incomes lagging behind rises in house prices

Wednesday 21st December 2016

House prices have risen twice as fast as pensioner incomes since 1994/95, new research from the Equity Release Council has revealed. 
 
The rises in house prices have far surpassed the gains in pensioners' disposable income from other forms of retirement income such as state pension, investments, occupational pensions and other earnings.
 
Pensioners' household incomes, according to the latest data from the Office for National Statistics, have risen by 66% in real terms in the last 20 years (£12,664 to £21,026 a year). Inflation-adjusted house prices in England, by contrast, have gone up by a staggering 148% over the same amount of time (from £82,100 to £203,360). This growth figure is now nearly ten times the size of a typical pensioner's income, up from 6.5 times 20 years ago. 
 
The growth in house prices, relative to pensioners' income, has not been totally linear during the last two decades, due to the unpredictability and variations seen in the housing market. In the mid-2000s, house prices increased rapidly – with the average house price rising to an inflation-adjusted figure of £224,313 in 2006/7, almost twelve times as much as the then average pensioner income of £18,957.
 
This gap, however, started to narrow after the financial crisis, down to 9.4 times in 2010/11. In recent years house prices have once again risen rapidly, rising faster than pensioner incomes and causing the gap to widen once more. The average house price rose 10% from £184,080 to £203,360 (a rise of £19,280) between 2012/13 and 2014/15, in comparison to a 5% rise in the average pensioners' income, from £19,989 to £21,026.
 
“House prices have experienced dramatic growth over the past two decades, which has given many homeowners’ equity a significant boost,” said Nigel Waterson, Chairman of the Equity Release Council.
 
“Many older people have seen the value of their home increase at a far greater rate than pensioner incomes, which has game-changing implications for how people make plans to fund their retirement.” 
 
He added: “While the growth in house prices has not been linear or universal, strong market fundamentals mean housing equity is likely to remain a sizeable asset for the foreseeable future. It means housing wealth has an indispensable part to play in all discussions homeowners have about financial well-being in retirement.”
              

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