Reports released at the end of last month by Prudential and Lloyds Bank have revealed a useful insight into the effect downsizing has on the UK property market. We now know that almost half of UK property owners aged 55 and over are planning to sell their property; of them three quarters are looking to downsize.
What are the reasons cited for this? Simply living in an empty nest which is too big appears to be the main impetus for just under two thirds of those surveyed. This is understandable and perhaps what many experts would say is the natural movement for the UK property market. In fact, it is estimated that some 47% of UK properties are currently under occupied. However, the convenience of managing a smaller home and thereby reducing the daily household running costs are also other key considerations that at the same time will undoubtedly enhance retirement funds. Surprisingly, accessing equity is only the third highest priority for downsizing over55s. As residential property is generally someone’s most valuable asset, the financial benefit to be gained from downsizing is very tempting and should be considered if you are looking for a cash boost.
Can you afford to downsize?
A cross-party think tank has found that one third of homeowners aged over 60 would consider downsizing. However, up to half cannot afford to move to a retirement property. Subsequently, the All Party Parliamentary Group (“APPG”) on Housing and Care for Older People has recommended that a scheme be implemented which effectively helps the elderly to move. An equity loan, similar to that of the Help to Buy scheme, would help older UK homeowners with properties valued up to £250,000 resolve the gap between the value of their home and the purchase price of a retirement property. The APPG has also suggested Stamp Duty Land Tax be abolished for the over 60s who wish to downsize to a UK property purchased at £250,000 or less.
Downsizing is for life, not just retirement
It seems that it is not just the baby boomers who are looking to cash in on downsizing. According to the Lloyds report, over half of homeowners planning to sell their UK property by 2018 stated they would ideally move to a smaller house. In fact, of those surveyed most motives for downsizing were financial; with 40% wanting to reduce outgoings and 28% seeking to release equity. Downsizing still evidently plays a major role in the UK housing market. It could even be said that it is the downsizers who are helping to keep the market moving by freeing up larger properties for those climbing up the ladder.
What can I expect to make?
Lloyds reported that trading down to a detached property to a bungalow could free up on average as much as £103,715; an 8% increase on what would have been achieved ten years previous. Whereas, trading down from a detached home to a semi-detached property will yield an average equity release of £121,686.
Those who invested capital in the capital stand to gain the most from downsizing. Own a London property and you could be in a position to make an average of almost £289,927 from trading down to a bungalow from a detached home. If you do not think a bungalow will work for you, then moving from a detached property to a semi-detached house could net an average of £237,614. In comparison, those owning UK detached properties in the northern counties could have £101,805 nestled in their accounts when downsizing to a semi and £70,044 by moving to a bungalow.
Future investment
What are the plans for this extra cash made from downsizing? According to the Lloyds report, just under half plan to reinvest in another UK property, while a quarter will opt to sink their money in financial products. Many others will use it to boost pension funds or simply, just to have a more comfortable lifestyle. So, whether you want to SKI (Spend your Kids’ Inheritance) or just want to go skiing, why not consider downsizing first?