Nearly three quarters (71 per cent) of the nation’s homeowners say they are relying on the rising value of their home as a substitute for long-term savings, according to Abbey’s latest Savings Insight report.

At the same time, sixty per cent of adults in Britain admit they don’t save money regularly. This equates to 28 million Britons not saving money for their future and 12 million UK homeowners potentially leaving themselves over-exposed to the property market as a means of providing for their old age.

The research, conducted for Abbey by the Future Foundation, follows a recent Pensions Commission report which warns that some 12 million people could end up poorer than the rest of society because they are not saving enough, and that they will either have to delay retirement for at least five years, pay more taxes or save more to plug a £57 billion black hole in public and private pension provision.

Tomorrow’s OAPs will still owe money on their mortgage

For those on the property ladder, Abbey’s research shows that 47 per cent of homeowners now have a mortgage that extends into retirement, a figure that has almost doubled since 1992 when it was 26 per cent. With this in mind, it is unsurprising that 55-64 year olds are the least optimistic (24 per cent) about using the housing market as an investment to fund their retirement compared with 47 per cent of 18-24 year olds.

This younger age group are also pinning more hope on the equity in their homes providing a pot of money to pay for any long term care (40 per cent compared with 25 per cent of 55-64 year olds).

According to Abbey’s research, people retiring see an average 41 per cent drop in monthly income when they stop work. For some people who reach retirement age with no long-term savings or income other than a state pension and the equity in their home, the prospect of a few more years’ work could be a necessity rather than a choice.

The research also shows that 80 per cent of lower income households who own their own home are relying on it as an investment for old age compared with 60 per cent of higher income families. With less money available to put away into long-term savings, it’s not surprising that lower income households are more exposed to the property market to provide for their future. However, these households have more altruistic hopes for the equity in their homes, regarding it as money for the next generation and not themselves. Almost two thirds (64 per cent) of them view their home as an inheritance for children compared with 43 per cent of those in middle or high income households.

Poor savings habits and worrying trends

The Abbey Savings Insight report reveals that the majority (71 per cent) of people who do choose to save regularly rely solely on a cash deposit account. Just a third (33 per cent) of all savers take advantage of tax-free savings by using a mini cash ISA or a TOISA and almost the same amount invest in shares (32 per cent).

Equally concerning is the long-term trend in saving since 1992. Abbey’s research shows that there has been a very gradual increase in the number of savers over the last 12 years. During this time, the increase has been so small that if it were to continue at the same rate for the next five years, only 44 per cent of Britons would be savers by 2009. Based on this prediction, the UK would not have a majority of the population saving until 2035.

Interestingly, despite so many of us relying on getting onto the property ladder to help fund old age, saving for special events (7 per cent) still comes higher up the list than saving for a house (6 per cent). We’re still more concerned with saving for the short term, with 24 per cent placing saving for a holiday as their top goal (the single most popular choice) rather than a private pension (15 per cent), or their children’s future (4 per cent).

Angus Porter, Abbey’s Customer Director said, “Despite our findings, it’s not all doom and gloom. At Abbey, we’re seeing a big increase in the number of people opening savings accounts, but there’s clearly a lack of saving for the longer term and the balance is all wrong. Our concern is that so many people rely solely on their home and the equity in it rather than a balanced mix of savings and investments to pay for old age and long-term care."

“We understand that not everyone can afford to put money away in different pots for the longer term, but starting to put money away now on a regular basis could prove to be a real help later in life.”

Abbey advises those worried about paying back their mortgage once they’ve retired to speak to their lender about restructuring the loan so that part could be repaid over a shorter period, leaving less to pay off later when money may be tighter. Alternatively, they could review their savings to find the best place to build up a pot of money to help with mortgage repayments once they've retired.

Equity release becoming more common

House prices have risen by 113 per cent since 1996 and for a generation used to annual double-digit property price growth, it’s not surprising that so many homeowners plan to take advantage of the rise in their property to help fund old age.

Abbey’s Savings Insight report reveals that five million (28 per cent) homeowners have already tapped into the recent house price boom and released equity at some point. The most popular method of releasing equity from a property is re-mortgaging which 44 per cent of homeowners choose. The second most popular choice is taking out a specific equity release scheme or other financial product such as a home improvement loan (30 per cent). Downsizing to a cheaper home is the preferred option for one in five people (20 per cent), followed by the least popular choice, which is moving into rented accommodation (seven per cent).

Angus Porter adds; “It is worth remembering that the value of your home might not always go up, as plenty of people who suffered from the negative equity fall-out from the housing market crash in the early 90s will testify."

"Future generations looking to stop working at retirement age should be wary of putting all their eggs in one basket and betting that the value of their home will provide enough to see them through old age and leave something for the family to inherit.”

Free guide from Abbey

Abbey’s Future Guide to saving and investing, including planning for the short and long term, can be downloaded for free at www.abbey.com under the saving and investing part of its website.