Close to half of all British pensioners have considered downsizing in order to access some of the cash invested in their home.
For most people, the biggest asset they own is their house. Combine that fact with the data that shows most of us aren’t saving enough for our retirement and it is hardly surprising to discover almost half of pensioners are considering downsizing in order to release cash from their home.
McCarthy & Stone’s annual Retirement Confidence Index has revealed that 38% of people aged 65 or over are considering downsizing, while a further 10% would be encouraged to downsize if the government introduced a Stamp Duty exemption, meaning almost 5.7 million Brits are weighing up the idea of selling their homes and moving into something smaller.
A mass sale of large family homes would be great for the housing market, freeing up properties for second-steppers who are struggling to make the leap to a bigger property and therefore also putting more small properties on the market for first-time buyers.
But would downsizing be a good idea for the nation’s pensioners, or could they end up regretting their move?
Here are four things to consider before you put up the 'for sale' board.
Will you make enough money?
The main reason many people downsize is to release money to help fund their retirement, but you may well be kidding yourself about how much you will make.
A report from Royal London found that moving from the average detached home to a semi-detached property would free up around £113,000. Sounds like a lot but it equates to an annual retirement income of around £5,700 a year.
“Hoping to live off the value of your home could be a ‘downsizing delusion’ for millions of people,” says Steve Webb, director of policy at Royal London.
“In most of Britain, the amount of money you could free up by trading down to a smaller property would generate a very modest income.
“Even with today’s record house prices, very few people could fund a retirement by selling up and moving to a smaller property.”
Think about all the little costs
You also need to consider all the costs involved in moving home. Once you’ve factored in the legal fees, Stamp Duty, removal costs, surveys and estate agent commission how much will you be left with?
It now costs around £12,000 to move home, according to Lloyds Bank, with that figure leaping to £30,000 if you are moving within London.
Where will you move?
If you’ve lived in the same area for decades, do you want to stay there or do you want to move nearer to your children or escape the city? Think about where you would want to live and research house prices there.
Also, don’t forget to consider your social life. You don’t want to downsize to a cheaper area in order to maximise your gains only to find yourself cut off from your friends and family.
While you’re at it, think about the services you will need now and maybe later on in life. Spending your retirement in the countryside may seem like a great idea, but how good is the public transport if you need to stop driving? Where is the nearest hospital or chemist?
You don’t want to end up having to move again in a few years and paying all that moving money twice.
Can you find a suitable retirement home?
You’ve thought everything through and picked your ideal retirement location, but are there any suitable houses there? The reason your current home is worth so much is because Britain is in the midst of a housing crisis and there is a particular shortage of retirement properties.
There are just 720,000 retirement properties in the UK, that’s enough for just 7% of Britain’s pensioners.
Make sure you do your research and there is actually a suitable property, in the right area, that you could move to before you consider downsizing. Then take the time to do your sums carefully so that selling your family home will actually free up a meaningful amount of cash.