Over two million over-55 homeowners bank on downsizing

Up to 2.3 million homeowners aged 55 and over are banking on raising money from their homes through downsizing and on average hope to raise around £85,300 each from their property deals, according to new research from Prudential. When asked how they plan to make use of the money raised, over-55 downsizers are equally as likely to splash out on a one-off purchase (42%) as they are to save or invest a sum (41%). Nearly three in 10 (29%) are planning to put some of the money into their pension pots.

Prudential’s research found that 38 per cent of over-55 homeowners expect to sell their houses at some point, with one in five (20%) expecting to sell and buy another property within the next five years. More than three quarters (77%) of the over-55 homeowners who are planning to sell say that they aim to release equity from their home by downsizing. Although the average amount anticipated by downsizers is much less, nearly one in ten (9%) are expecting to raise £200,000 or more.

However, the research highlighted that the costs involved with moving house are a significant barrier to downsizing – more than a quarter (28%) of over-55 homeowners who responded in the Prudential research, say they are likely to be deterred from downsizing by the total bill for buying, selling and moving home.

Vince Smith-Hughes, retirement income expert at Prudential, said:

“Homeowners who have been lucky enough to gain from the long-term strength of the housing market should exercise caution if they are banking on downsizing to be the magic wand that provides a decent retirement income. In some cases the amounts of cash realised can be lower than expected and the cost of moving house should not be underestimated. The changes to pensions and how people can take their retirement income announced in the Budget in March 2014 will provide savers and retirees with increased choice. Our research also shows that homeowners are thinking carefully about what to do with the even greater degree of choice provided by expected gains from the value of their home. Faced with all these potential decisions, people approaching retirement should seriously consider taking professional financial advice.’’

“Irrespective of the Budget changes and the strength of the housing market, the fundamental principle remains true – the best way to secure your desired level of retirement income is to save as much as possible as early as possible in your working life.”

The over-55 downsizers surveyed also say that they are not planning to keep all the money to themselves. One in eight (12%) plan to use some of the money to help their children get onto the housing ladder while 15% say they will use some of the money to assist their offspring with other financial issues. The most common reason for trading down cited by 60% of the over-55 downsizers is the convenience and the ease of running a smaller home. A third (32%) say the reason for downsizing is to raise money, while one in five (21%) want to save money on the cost of running their home.

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