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Downsizing not ideal – what about equity release?

Downsizing not ideal – what about equity release?

Category: Retirement

Updated: 18/12/2015
First Published: 18/12/2015

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

For many people, the thought of downsizing to a smaller home when they hit retirement simply isn't palatable – but that doesn't mean they can't benefit from their home's accumulated equity to boost their retirement income. What about equity release?

Reluctance to leave

Research from Key Retirement shows that the average equity release customer has lived in their home for 21.8 years before cashing in on their property wealth, while nearly one in three has lived in their home for 30 years or more. This illustrates why downsizing isn't an option for many, said Key, with many reluctant to leave the home they've been in for so long, and that's before we consider the level of extra fees they could have to contend with.

They could have built up a nice amount of equity, too: the figures show that, on average, homeowners who bought properties in early 1993 would have seen UK house prices rise from £60,850 to around £203,800 – an increase of nearly £143,000 – which could provide a welcome boost to retirement finances. Not only that, but downsizing could result in a chunk of that money being lost through stamp duty, with 2% being charged on the proportion of their new property's value over £125,000, rising to 5% for the proportion above £250,000.

"Stamp duty, legal and removal fees and the cost of turning their next house into a home make downsizing an expensive option for many," said Dean Mirfin, technical director at Key Retirement. "The upheaval and risks of losing touch with friends and family as well as local services, including healthcare, can all impact negatively on the decision to move, as well as the fact that these homeowners are very attached to their homes, which they have invested in for many years."

Lack of suitable homes

Aside from the emotional and financial reasons for many retired homeowners to stay put, there's another clear practical one, and that's the sheer lack of suitable homes available for retirees. The number of homes for sale hit a record low in November, too, which only compounds the issue.

So, while downsizing may appear to be the logical solution for many, it isn't always that simple in practice, said Key, as it "overlooks a wide range of issues that are important to retired homeowners". This is where equity release can really come into its own.

"Equity release customers are accessing an average of nearly £75,000 from their property wealth without having to tackle the financial and emotional issues involved in moving home," added Dean.

"The average customer has owned their home for nearly 22 years and has clearly benefited from house price growth but prefers to stay in their house rather than going through the upheaval and costs of moving. Until we are building the right sort of properties and in the right quantities, both the maths and availability to facilitate downsizing remain a huge challenge."

What next?

Considering equity release? Consult our no-obligation consultation service to find out more.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.