While downsizing may be ideal for some people nearing retirement, there are other avenues they can explore
In the lead-up to the Government’s recent white paper on housing, there was a lot of speculation about new initiatives to support Britain’s “last-time buyers” – older homeowners wanting to downsize into smaller, more appropriate accommodation.
Much was made about a potential cut or “holiday” in stamp duty for them, removing perhaps the biggest financial barrier that can deter older people from leaving the large family homes they occupy.
In the end, the white paper did very little to address the downsizing dilemma and the problem has not gone away.
But even if it had looked into this important issue, we must not make the mistake of assuming all people approaching retirement actually want to downsize.
For many over-55s, the concept of moving shortly before, or during, retirement is just not something they want to contemplate. Indeed, our Last Time Buyers report found that, of the 11.4 million over-55s in the UK, just 3.3 million were considering downsizing in the future.
One size doesn’t fit all
While downsizing might be an ideal solution for some to pay off the mortgage or find more appropriate accommodation, not all older homeowners want to deal with the stress of moving.
What is more, if it is a family home, downsizing can often mean cutting a strong emotional cord. Cost is clearly a factor, too. Stamp duty, moving costs and estate agency fees all add up. Finally, we simply do not have enough of the right properties for older people to move into. We found more than three million over-55s are looking to downsize, often from a four-bedroom home to a two-bedroom property, yet just 2 per cent of the UK’s housing stock is purpose-built for retirement.
Asset rich, cash poor
But if downsizing is not an option, releasing property wealth certainly is. “My house is my pension,” is an increasingly common sentiment in the UK, and we are beginning to see the realisation of that type of thinking in the expansion of the retirement lending market.
It is not difficult to see why: people are living longer, often up to 30 years past retirement age, and pensions are no longer enough to support even a fairly modest retirement. Pension freedoms lit a firework under the market and changes such as the relaxation of withdrawal rules and the end of contracting out raise the problem of older people approaching retirement without the funds
Enter the modern, flexible and increasingly popular lifetime mortgage. These products give consumers the option to access “the pensions they never knew they had”, without the need to sell their home or pay back their loan until they pass away or move into long-term care. More people are choosing to release equity from their homes to get the most out of retirement. In just three years, the market has doubled from £1.07bn in 2013 to £2.15bn in 2016. However, we must do even more to meet the needs of older homeowners.
Advice remains essential to these products, yet many intermediaries still do not look at equity release, despite holding the relevant qualifications. Misnomers about the market of the past and the perceived cost of roll-up products can be a deterrent but the market has changed.
Our research found that the over-55s will hold around £1.2trn in housing wealth by 2020. At £2.15bn, lifetime mortgages still represent just a tiny fraction of the wider £246bn mortgage market. We want to see more intermediaries advising and raising awareness about these products with clients.
Providers must also play their part, creating innovative new products to meet the specific needs of consumers rather than taking a “one-size-fits-all” approach.
At the very least, we must all recognise that downsizing is not the only option for retirement. Yes, many older homeowners will want to move property in later life and lifetime mortgages will not be right for everyone.
But it remains essential consumers are aware of all the options open to them and that intermediaries are there to help them along the journey. That way, we can give our clients the best chance of getting the most out of their retirement.
Steve Ellis is managing director at Legal & General Home Finance