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Downsizing – moving from a larger family home to a smaller one – can be a smart way to release cash for retirement.
Since mortgage rates began rising sharply in 2021, cutting costs by moving to a smaller (cheaper) property has been a consideration for homeowners unsettled by the rising cost of living. But not enough of them are going through with the move and by staying put, the ‘empty-nesters’ have created a supply shortage at the other end of the market.
A total of 41% of UK homeowners aged 65 and older admit their property is larger than they need, according to Zoopla. These are exactly the properties that need ‘freeing up’ for second and third-time buyers stuck in two and three-bedroom homes their family has outgrown. This in turn, limits the options for first-time buyers.
We spoke to two property experts to unpack the problem and explore what’s needed to get the market moving.
Why downsizers are reluctant to move
Their home could be worth more if they wait
The biggest asset many people own is their house and many homeowners see their home as a cornerstone of the estate they’ll leave for their children.
When house prices rise, the monetary value of a larger property will increase more than that of a smaller home. This can make older homeowners hesitant to downsize, conscious that their appreciating asset has the potential to generate more wealth for their family in the future.
Simon Gates, an estate agent and PropTech consultant, thinks that rising house prices are a key reason would-be downsizers won’t budge. “If house prices go up, let’s say, 5% each year, they’d much prefer to have 5% of a million quid going up each year rather than 5% of half a million quid [now],” Gates explains.
However, not everyone wants to sit on a large property in the hope that its value increases. For many, releasing some of the cash tied up in their home will enable them to support their children and grandchildren now.
Research by Uswitch revealed that almost two-fifths (37%) of first-time buyers in the UK received their deposit as a gift or loan from family in 2022-2023, 10% more than the previous year. “That [deposit] money is more valuable for those who are starting families and need to be in a good area for schools,” says Bristol-based estate agent, Tim Pepper.
More people are adapting their property
There is a growing focus on ensuring the UK’s ageing population has suitable housing and advancing technology means that more homes can now be adapted to suit older occupants.
Though not everyone has the support, information or money to make their home more accessible, property adaptations are desirable for those who want to live independently for as long as possible. But, what seems like a great thing for older people may be problematic for those further down the property ladder.
Pepper sees the potential for large, adapted properties to cause issues elsewhere in the UK housing market, and thinks this will have “a knock-on effect for first-time buyers at the bottom”.
“Introducing lifts into big old houses is going to stop people downsizing even more, whereas downsizing to something smaller and more practical could free up that house for the next generation,” Pepper explains.
However, he accepts that older homeowners have every right to make changes to their home. “It’s not for us to say, if it’s their property, it’s up to them,” he says.
The sense of ‘home’ is strong
Moving is one of life’s most stressful events and is particularly daunting for older homeowners who’ve been in the same property for decades. Understandably, older homeowners become very attached to the house where they’ve raised their family, and may feel overwhelmed by the idea of condensing a lifetime of possessions into a smaller property.
Pepper says his parents, in their late seventies, have no intention to downsize from their four-bedroom detached house and “haven’t discussed moving at all”. Having spent a significant proportion of their life in one place, people are naturally resistant to change. “A lot of people get stuck in their way[s],” says Pepper. “They like their neighbours, they know their doctors, they know their local shops, and they just feel comfortable.”
Why downsizing could be a smart financial move
Smaller homes are less expensive to run
Not only can downsizing release a chunk of cash when you sell, smaller properties can be considerably cheaper to heat and maintain, leaving more money in your pocket month-to-month. You’ll also save time on gardening and housework.
Many new builds are already adapted
New build properties tend to have more lateral living space, with wider doorways (for wheelchair accessibility) and fewer stairs. Rather than spending thousands of pounds having a home modified so that you can live there longer, consider what else you’d like to do with that money.
You may want to help your family
Downsizing might make it possible to help your child or grandchild secure their first home, without having to drain your own savings. If you are considering gifting a large sum of money to a relative, make sure you’ve taken care of your own financial future first. You may want to seek professional financial and legal advice to ensure it’s the right thing for all of you.
Should there be a financial incentive to downsize?
In the same way that first-time buyers pay no stamp duty on properties up to £425,000, and a discounted rate up to £652,000, Gates thinks last-time movers deserve a helping hand too.
“As a country, we’re trying to do so much to help first time buyers. They do need help, but actually, if we reverse engineer it in helping out that last time mover it should free up the market for first time buyers,” says Gates.
Pepper is hoping more downsizers come into the market to free up housing stock for second and third-time buyers. “If the downsizers have moved out [it] would then, in turn, ease the first and second time buyers, which would move the whole market.” However, he’s not convinced an incentive would work.
“They’ll just move when they feel ready – not when they have to, [but] when they want to. I don’t think a government scheme is enough. Maybe a free cruise might get them going.”
Image source: Getty Images
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