Rise of the mid-life downsizers: The generation planning to fund retirement with their family homes

Almost four out of five Brits on the cusp of retirement plan to downsize to unlock cash from the family home to fund their later lifestyle, according to new research.

Among those aged between 45 and 60 years old – known as Generation X – a striking 78% plan to take advantage of high house prices and use the equity from their familial home to supplement their pension by selling their property and downsizing.

This is much higher than the average of 59% among all age groups, according to the research from annuity comparison website Annuity Ready.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Overall more than a quarter (28%) of Brits plan to use the value built up in their home to help fund their retirement – whether by downsizing or using equity release.

The data paints a picture of a nation increasingly dependent on property wealth to fund retirement, rather than solely on the state pension and private pensions.

Sarah Lloyd, commercial director at Annuity Ready, said: “We’re seeing a generation of people leaning on their home as a backup to their pension pot.

“Some may be using it as the main source of income in retirement, while others are using it to supplement their existing pension pots as the overall cost of living continues to rise.”

For many, this isn’t an option. According to ONS data, those aged between 45 and 60 years old are three times more likely to be renting their home than 20 years ago, and some may never own a home.

But with around 75% of the population owning a property as they reach retirement, many people are sitting on – and sleeping in – a significant store of wealth.

James Daley, managing director at the independent consumer group Fairer Finance, said: “As things stand, there are a number of social, economic and regulatory barriers which stop housing being part of the mainstream retirement planning conversation.”

For those who want to downsize, there is a lack of suitable and desirable retirement housing, Daley pointed out. While when it comes to borrowing in later life for equity release, the silos in regulated advice mean many people are not being presented with all their options.

“If we’re to head off a later life funding crisis, policymakers need to start taking action to bring down these barriers now,” Daley said.

Pros and cons of downsizing

The main disadvantage of downsizing is you have to move from the family home you have probably spent many happy years filling with memories. Selling a property and moving home is always stressful and more so if you have lived in the property for a long time. Plus there is a cost to selling a house.

“Downsizing might work for some, but it comes with financial, logistical and even emotional challenges,” said Lloyd.

But there are a number of benefits to downsizing. Estate agents Savills pointed out some possible pros to moving to a smaller property.

1. Financial freedom

On average people in the UK hold more housing wealth than pension wealth, the ONS has found. Yet based on levels of pensions and savings alone, almost four in ten (38%) future retirees are heading for an income below the recommended minimum living standard, according research by Scottish Widows.

This highlights a major mismatch between resources and retirement funding strategies. Downsizing will likely unlock a significant amount of equity to invest or to enjoy as retirement savings. Monthly expenses could also be reduced by downsizing.

2. Less maintenance and clutter

Big family homes are demanding – from cleaning and maintenance to gardening. Downsizing can reduce the physical demands of running a bigger property and selling off your preloved items could raise extra money towards buying better suited furniture or a post-move holiday.

3. Future proofing

A smaller home often means fewer stairs and a smaller square footage means the layout will be more accessible – which may be an advantage in later life if mobility issues creep in.