Homeowners have fallen out of love with using their property as their pension as the housing-market downturn has taken hold.

Around 40 per cent of homeowners say they are less confident about using equity in their homes as part of their retirement savings, according to a survey from MetLife, a pensions company. Nearly a third are much less confident than they were a year ago, the research shows.

The survey came as the latest house-price data from the Land Registry showed a further deterioration in the market. Prices fell 1 per cent in June to £180,781, the tenth consecutive decrease. In London, the decline was even sharper with a 2.5 per cent fall.

About 16 per cent of homeowners are depending on the accumulated wealth in their property for their pension, according to research by Business Development Research Consultants, which provides data to FTSE 100 companies. With 18.5m owner occupied houses in Britain, that's 2.96m households.

However, many people have seen a big drop in the amount of equity they could release from their homes because of the downturn. Someone who bought a property in 1965 at the age of 25 would have accumulated, on average, about £193,503 of equity in their property by the end of last year, according to Halifax - assuming they had paid off their mortgage.

By the end of May, this had fallen 7% to £180,451.

Ed Gardner, chief executive officer at MetLife UK, said: “The party is over for the moment at least in the housing market, with most commentators agreeing that prices will fall this year and possibly for another two years.

“That ought to act as a wake-up call for people who have assumed that their property is their pension. Of course, equity tied up in your home can form part of retirement planning but, as recent events have shown, this does not provide a guaranteed pension. Saving into a pension is tax-efficient and should be a vital part of financial planning.”

Many homeowners planning to retire in the next year or two are being advised to downsize sooner rather than later. Roger Bootle, economic adviser to accountants Deloitte, expects UK house prices to fall by around a third by the end of 2010.

On the other hand, the National Housing Federation said today that prices may fall by only 2.1 per cent next year, before rising by 1.3 per cent in 2010 and by 25 per cent over the next five years. This suggests homeowners who are not planning to downsize this year or next can afford to wait.

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