Tumbling house prices could destroy pensioners' retirement nest-eggs, experts warn

Falling house prices could have a devastating impact on the retirement dreams of millions, a study has warned.

The crumbling property market may destroy pensioners' plans to take capital out of their homes and spend it on themselves and their families.

The research from insurer Prudential examined the amount of equity in the properties of retired homeowners - the value of the house over and above what is owed on the mortgage.

The report warns that this figure has dropped in four of the ten regions of England and Wales.

Across all regions, the equity in pensioners' homes rose by just 0.3 per cent between October and February.

This is a sharp fall on the 2.5 per cent increase during the previous five-month period.

The biggest losers are in Wales where the average 'equity slide' was more than £3,600 between October and February.

Homeowners in other parts of the country are not doing so badly. But the report reveals that equity is rising at a much more sluggish pace than it was during Britain's decade-long house price boom.

With property experts predicting prices could fall more than 20 per cent over the next two years, the situation for pensioners is likely to get much worse.

A key part of many pensioners' plans is to sell their large family home, release money and move into a smaller home. With this windfall, they can relax and enjoy themselves and indulge their family in a way they could not previously afford.

If the equity is going down, they will have less money to release, although they should be able to buy the smaller home for less money, too.

For other pensioners, the 'equity slide' will be a worry because they will have hoped to leave their home to their children or grandchildren in their will, to help the younger generations climb the property ladder.

But the report urges pensioners not to worry, pointing out the huge wealth that they have built up in their homes thanks to the property price boom.

Many pensioners bought their homes for a few thousand pounds several decades ago, and the value has climbed to a six or even seven-figure sum.

Despite the slowdown, Prudential - one of the biggest providers of private pensions - estimates that retired homeowners still have around £734billion of equity tied up in their homes. Around 22 per cent of this extraordinary wealth is in London, because prices there are the highest.

In some parts of London, the average price of a home is more than £1million, even for just a two-bedroom flat.

Although equity fortunes fell in four regions, not all homeowners suffered. Londoners were the biggest winners with the average home increasing by £2,721 after any outstanding mortgage debt had been taken into account between October and February.

Retired homeowners in Yorkshire and Humberside were the next best performers, with average gains of £2,154 during this period, followed by those in the South West, up £1,554.

Few, if any, pensioners are in danger of moving into negative equity as they tend to own their homes outright.

The main victims are younger buyers who took out huge loans to buy a home in the last year. With prices falling around four per cent since the start of the year, many already have a mortgage that is larger than the value of their home. Keith Haggart, business director of retirement income at Prudential, said: "It is important that retired homeowners don't lose sight of the bigger picture.

"Most have built up a significant amount of equity in their homes over a number of years so even if property prices do fall, many still have a huge amount of wealth in bricks and mortar."