How downsizing can boost your retirement and the property market

Older homeowners could unlock a substantial cash pot and boost their retirement income by downsizing to a smaller home, research suggests.

Homeowners who have lived in large properties for a long time have benefited from long periods of house price growth.

For example, the average property price for a detached property in the UK has grown around 83% since 2005 to £440,000, according to Land Registry data.

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Experts often suggest that older homeowners in large family homes where their children have flown the nest should be encouraged to downsize to free up stock for buyers further down the property ladder.

Analysis by Rightmove reveals that older homeowners of five-bedroom properties outside London without a mortgage could release £498,687 in cash by downsizing to a three-bedroom house, based on the current average asking price for these types of properties.

Beyond boosting property supply, you may be sitting on a valuable asset that could release useful income for your golden years, especially with the typical cost of a comfortable retirement now at £43,100 a year.

How much could you make by downsizing?

Five-bedroom properties have seen substantial price growth over the past decade, according to Rightmove.

Homeowners who purchased their properties in 2014 have experienced on average a 36% increase in the value of their property. 

London movers who own outright could release the most in pure cash terms, says Rightmove, at as much as £1,062,087.

Downsizers from the North East can gain the most proportionally, recouping 65% of their five-bedroom property value, the highest percentage of any region, according to the research.

At the lowest end of the regional scale, downsizers in the East Midlands, South West and East of England can still unlock 58% of their five-bedroom property value, a significant cash return.

Downsizing can release cash for your retirement and other spending needs, but your household bills could also be cheaper in a smaller property if there is a better EPC rating.

Rightmove analysis shows that downsizing from a five-bedroom less energy efficient EPC E rated house to a three-bed EPC C-rated home, could save homeowners an average of £3,806 a year in energy bills.

“Downsizing is a sensitive topic for many homeowners, as emotional ties and the inconvenience of moving often deter them from selling their family homes,” says Tim Bannister, Rightmove’s property expert. 

“However, empty nesters may overlook the significant benefits of downsizing, such as reduced energy bills and increased cash from purchasing a smaller home, that can still cover moving costs with leftover returns.”

Downsizing downsides

Downsizing may be easier said than done.

Older homeowners still need properties that suit their needs.

For example, Amy Reynolds, head of sales at Richmond estate agency Antony Roberts, says her patch is full of large properties owned by elderly couples or individuals who want to downsize but can't find anywhere suitable.

"Many would like to stay in the area and really want a smaller version of what they live in, which is a house with parking and a garden," she says.

“The issue is there isn’t the supply of properties people would like to move to. We have access to plenty of flats, but they often don’t have outside space and for people used to a freehold, leasehold can be complicated.

“There is a shortage of houses and as more houses are not likely to be built in urban areas short on land, it’s going to be an ongoing issue. The money may be trapped in the property, but with equity release and mortgages paid off years ago, freeing up the money isn’t a strong enough incentive when the key issue is on where to move to.”

There are also extra costs such as stamp duty, legal and conveyancing fees, which can deter buyers of any age.

“Downsizing has been a topic of conversation for many years, and would definitely be a positive in unlocking family homes," says Tomer Aboody, director of specialist lender MT Finance.

“The problem is that those downsizing don't always end up saving too much and therefore, if you factor in stamp duty, this ends up costing them money which in theory they don't need to spend. 

“A great way to incentivise downsizers to make the move is either by reducing the stamp duty on their purchases or completely removing them.” 

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, says downsizing can work as a way of releasing extra income for retirement but it does need careful consideration. 

"The costs associated with moving can really pile up and can take a massive chunk out of any money you make on the sale and this can impact the type of property you find you can afford," she says.

"As people get older they also get less likely to want to downsize as they don’t want to uproot their lives and move away from an area where they have family and friends.”