One in four downsizers get less than they bargained for

One in four (24%) downsizers ended up with less money than they expected when selling their property, with legal fees, stamp duty, moving and renovation costs eating into their profit.

This is according to new research from financial services provider OneFamily, which reveals that while 43 per cent of older homeowners have moved to a smaller property to unlock money tied up in their home, 20 per cent of downsizers felt disappointed with their overall return.

Once the associated costs of selling up and moving are taken into account, the average downsizer ends up with approximately £105,900 from the sale of their property – £28,650 less than anticipated. In addition to receiving less than expected, nearly half (48%) say that the expenses from fees, stamp duty and moving and renovation costs accrued to more than they bargained for and they overspent by £12,480 as a result.

While some underestimated the costs involved in moving, others thought they would make more from the sale of their property, which meant they felt short-changed after the move. Of those who made less than expected from downsizing, one in 10 (10%) had to reduce the asking price as a result of a difficult housing market and a further 57 per cent accepted an offer lower than the asking price.

On average, it took downsizers just over seven months from when they started the selling and moving process to receive the funds. It’s also likely that those thinking about downsizing within the next five years might have to contend with a lack of supply, particularly as 41 per cent plan to move to a bungalow, which despite the demand are in short supply[i]..

With the average worker reaching retirement with just £28,000[ii] in pensions savings many need to cash in on their property wealth in order to support themselves in retirement. One in five say that they felt like they had no choice but to downsize in order to boost their pension income, although of these, one in four (25%) were sad to leave their old home behind and more than one in ten (13%) would have preferred to stay in the same home given the choice. 

An alternative to downsizing is taking out a lifetime mortgage whereby homeowners can release capital from their property without needing to move home. Homeowners can borrow up to 50% of the value of their home, which based on the average property price of £247,886, would give homeowners a generous £123,943 to help fund their retirement. Of those who downsized, nearly a third (31%) said they were not aware that a lifetime mortgage was an option.

Nici Audhlam-Gardiner, Managing Director of Lifetime Mortgages at OneFamily comments:

“It’s great that many people now have longer active retirements, however they come at a cost and many pensions won’t stretch far enough. Many retirees feel they have no choice but to downsize but there are different ways of releasing capital to help fund later years. Its unsurprising that many people don’t want to move as they will have got their home just as they like it, and moving to a new house is often stressful and expensive.

“A lifetime mortgage allows homeowners to access the wealth tied up in their home, delivering a cash lump sum without having to move. They can spend the money on whatever they please, be that renovations to their property, paying for day to day living costs or helping out younger family members financially. The most important thing is that over 60s understand the various options available to them so they can make the best decisions for their retirement and don’t feel forced into selling their homes unnecessarily.”

[i] https://publications.parliament.uk/pa/cm201719/cmselect/cmcomloc/370/37009.htm#_idTextAnchor086

[ii] Opinium Research – A review of the pensions landscape in 2017 https://www.opinium.co.uk/wp-content/uploads/2017/08/A-review-of-the-pensions-landscape-in-2017.pdf