The Myth of Downsizing

Research from Prudential reveals there are over two million homeowners aged over 55 who are hoping that downsizing could help in order to pay for retirement.

Moving can be an emotional upheaval and the whole process can become very stressful, especially with one in five property sales falling through.

The disruption that comes with moving house can cause more pain than gain. When you take into account legal fees, removal costs and stamp duty, the costs soon mount up. In actual fact, for those who are hoping to pay for some of their retirement by downsizing, the money may not extend as far as they might think. Research from Standard Life shows the average downsizer only makes approximately an extra £43.50 a week in retirement income.

Also a home is more than just a property. It can be a place full of fond memories of raising children, special occasions and family time. Being surrounded by this history can provide some comfort, especially in later life.

Due to heavily inflated property prices over the last 25 years, a lot of property owners will find themselves cash poor but asset rich. For homeowners in this situation, selling up and buying a cheaper property (downsizing) may seem like the only option they have to benefit from the equity locked in their home.

Older homeowners might want to consider using equity release to unlock capital to enjoy today, instead of going through the upheaval of downsizing, having to discard belongings and move to unfamiliar surroundings. This would keep them safe in the knowledge that they can stay in their home for the rest of their lives.

In fact, one in five of our customers use equity release to purchase a new home – or even upsize. This can sometimes be buying a larger property, or buying a property in a different location. It is unsurprising when you think that they will have time to enjoy their home and garden and may even want extra space for their children and grandchildren to stay. This shuns the stereotype that all retirees want to move into a smaller property.

For the people who want to move because they’re taking mortgage debt into retirement, it’s likely that this is because they are unaware that there are other options available to them. While the mainstream lenders may be backing away from lending in retirement, equity release has been designed for this type of customer.

Adaptable and innovative products can be designed to suit individual needs and development in this area means that many of the products that are available are now just like the traditional mortgages that homeowners will be familiar with.

Many people were put off this idea in previous years, as they were worried about the impact of interest roll-up. However, flexible and innovative products allow routine or ad-hoc interest payments, so this can be reduced or even eliminated altogether. Essentially, this increased flexibility means that they can enjoy the money today – but with peace of mind that they can still provide for future generations.

It’s more important than ever that a financial advisor offering advice on retirement options considers their client’s home along with any other investments and pension pots as part of a holistic approach, because as this shows, equity release could be a practical solution for many.

Alice Watson is product and communications manager at Stonehaven

Post courtesy of Mortgage Solutions.