What falling house prices could mean for your retirement plans

It’s been a turbulent few years for the UK economy. One of the effects of the uncertainty has been a drop in house prices throughout 2023, which can affect your finances in a variety of ways. 

If you’re a homeowner and are soon to retire, you may be wondering what the change in house prices could mean for your plans. 

Read on to learn what the data shows about house price changes in the UK over the past year and, if the current trends continue, how this could affect your retirement plans. 

House prices have fallen slightly across the UK in 2023

The housing market is rarely out of the news, so you may have heard headlines about house prices falling. 

Zoopla has reported findings from its House Price Index that show the average price for a house in the UK dropped by 1.1% in the year to October 2023. This follows an annual drop of 0.5% in September 2023, the only other annual drop that the property website has registered in over 10 years. 

While falls have been most pronounced in the south and east of England, all regions in England are now registering falls. Even though this can be concerning to hear, Zoopla reports that the drop has been smaller than anticipated, and the economy is continuing to grow slowly. 

A reduction in buyer demand is thought to have caused the fall. In the House Price Index, buyer demand was 20% lower than the same time period last year, and 25% lower than the five-year average for October. 

It’s likely that the increase in mortgage rates since the 2022 mini-budget has caused more buyers to pause their plans or opt for a smaller house than they might have initially been looking for. 

Zoopla predicts that house prices will continue to fall by 2% in 2024, assuming mortgage rates fall to 4.5% by the end of 2024 and remain at this level during 2025. Of course, it’s impossible to know for sure what could happen, so this is no guarantee. 

Falling house prices could mean you have less equity in your home

When house prices fall, the value of your home can be reduced. Given that your home is usually one of your most valuable assets, this can have a negative effect on your overall net worth. Consequently, falling house prices can place pressure on your finances. 

For mortgage-holders, a fall in the value of your home can reduce the amount of equity that you own, increasing your risk of falling into “negative equity”. If you sell your home, you’ll still owe the amount you borrowed, even if the proceeds of the sale don’t cover the entirety of your outstanding mortgage debt. This can make it difficult to buy a new home, and as such, you may decide to pause or change your plans. 

An additional factor is the importance that house prices have in the economy as a whole. When they’re falling, it can lead to a loss of confidence, so more people save rather than spend. While this may not directly affect you, it can influence how you feel about your own wealth and, as a result, affect the decisions you make about your lifestyle and your plans for the future. 

Depending on your circumstances, falling house prices might affect your retirement plans

If you’re approaching your retirement, falling house prices could affect you in a number of ways:

• If you are planning to downsize to unlock cash, you may receive a lower price than you hoped for and have less cash to spend throughout your retirement. 
• If you are planning to use equity release to free up cash, you may not be able to borrow as much as you expected. This can make it more difficult to achieve your goals. 
• Your home may have a lower financial value as an asset to pass on to beneficiaries after you die. 

This can mean it’s more difficult to achieve the lifestyle you planned for your retirement. As such, you might choose to delay your retirement or change your plans to align with your budget. Of course, neither option is attractive, so it may be helpful to consult a financial planner for support. 

A financial planner can help you to mitigate the effect of house price falls on your retirement plans

A financial planner can help you to make sense of the headlines about house prices and focus on your own personal circumstances. In doing so, you may be able to mitigate the effect of a drop in house prices on your retirement plans. 

If you’re concerned about the effect that falling house prices could have on you, we can help. Email enquiries@metiswealth.co.uk or call 0345 450 5670 today to find out what we can do for you.

Please note

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

Buy-to-let (pure) and commercial mortgages are not regulated by the Financial Conduct Authority.

Think carefully before securing other debts against your home.

Equity Release will reduce the value of your estate and can affect your eligibility for means-tested benefits.

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.