Research from Prudential has revealed that a growing number of over-55s plan to sell their current home and move to a smaller property, with the biggest motivation being the amount of capital that can be unlocked. Given that the typical amount of cash freed up per household is a whopping £87,600, it's no wonder that so many are considering taking the plunge – but is downsizing right for you?
According to their latest bi-annual Downsizing Index, 41% of homeowners aged 55+ plan to sell their home in the near-future – up from 38% six months ago – and 75% of those are planning to downsize. The amount of capital they can unlock through the sale is also increasing, thanks in no small part to rising property prices, with the £87,600 figure a clear increase from the £85,300 they were expecting to release in May.
And it looks as though that money could be put to good use. Of those expecting to release equity from downsizing, 45% will spend newly-released cash on big ticket or luxury purchases, such as holidays, offering a one-off treat that they couldn't otherwise enjoy. An additional 48% say they will save or invest the money, while 40% will use the funds to boost their pension pots, a sensible move considering how long the typical retirement lasts for.
As well as the clear cash benefit to downsizing, it seems that there are plenty of other motivations for taking the plunge. Having too much space is the key driver for 61% of respondents – perhaps unsurprising after children have flown the nest – while 58% are looking forward to the convenience of running a smaller home.
Accessing equity is another factor (34%), as is reducing the day-to-day costs of running a larger home (22%), while some find a change in personal circumstances (21%) obliges them to downsize. But, downsizing doesn't mean you've stepped over into a life of old age and boredom, as a large proportion of homeowners – 35% – are planning to relocate to another town or city in the UK, suggesting that many are hungry for a change.
Vince Smith-Hughes, retirement income expert at Prudential, said: "Our homes are often our most valuable assets, but also one of our greatest expenses. The financial benefits of downsizing, from both a cost-saving and releasing capital perspective, can be very enticing. But, those who are considering it should exercise caution, and be careful not to overestimate the level of funds they expect to receive."
He also points out that selling your home should not be seen as a substitute for saving for retirement, as although the amount of cash you release could potentially be significant, you'll still need a suitable financial buffer to ensure you can achieve your desired standard of living – whether you choose to downsize or not – making suitable savings and investments imperative.
Downsizing may be growing in popularity, but another report has noted that, for some people, there are significant barriers to doing so – meaning not everyone will be able to easily realise their dreams.
The All Party Parliamentary Group (APPG) on Housing and Care for Older People, a panel of leading politicians, has called on the Government to launch a support package to help older people move home following an inquiry into the issue. It found that a lot of people would downsize if it was easier, but many older homeowners are priced out of retirement properties and, if they still owe money on their mortgage, they can't easily access a new financing arrangement from mainstream lenders.
The APPG has therefore called for the launch of a "Help to Move" equity loan to bridge the gap between the value of their home and the purchase price of a new property, and has also suggested that exempting older people from paying stamp duty on homes worth up to £250,000 would reduce transaction costs.
The inquiry also cited analysis by the think-tank Demos, which found that 58% of over-60s are interested in moving, with a third specifically wanting to downsize. However, the costs involved mean many can't afford to, particularly if their property is worth less than modern retirement homes, and that means many are stuck in family homes they don't want to be in.
Lord Best, chair of the APPG, said: "More and more people in their 'extended middle age' are thinking about downsizing. This can mean much reduced fuel bills and maintenance costs, perhaps the release of some capital, and can prevent a forced move in later life. But down-sizing is not easy. Our report recommends a Help to Move package of Stamp Duty relief, financial advice and mortgage support – like the Help to Buy assistance for younger purchasers – to generate the demand that will get more high-quality homes built for this age group."
Whether or not these plans come to fruition, it can't be denied that there are significant costs involved with moving, even with downsizing. That, combined with the sentimentality of the whole thing – you may simply not want to leave your family home – means you may be wary of the idea.
But, there are alternatives to downsizing. If you want to free up some of the cash in your home without having to move, equity release could be a viable solution. It's a form of lifetime mortgage that unlocks a proportion of your home's value (your equity) in return for a cash lump sum, and there are various different types available. To find out more about it and if it could be for you, contact our no obligation equity release service and see if you could reap the rewards of your home's value without needing to downsize.
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