Up to 2.3 million homeowners aged 55 and over are banking on raising money from their homes through downsizing and on average expect to raise around £85,300 each from their property deals, according to new research from Prudential.
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 per cent) expecting to sell and buy another property within the next five years.
More than three quarters (77 per cent) of the over-55 homeowners who are planning to sell say that they aim to release equity from their home by downsizing.
The average amount they hope to release is around £85,300. However nearly one in ten (nine per cent) are expecting to raise £200,000 or more.
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 per cent) as they are to save or invest a sum (41 per cent).
Nearly three in 10 (29 per cent) are planning to put some of the money into their pension pots.
The most common reason for trading down cited by 60 per cent of the over-55 downsizers is the convenience and the ease of running a smaller home.
A third (32 per cent) say the reason for downsizing is to raise money, while one in five (21 per cent) want to save money on the cost of running their home.
However, the research highlighted that the costs involved with moving house are a significant barrier to downsizing – more than a quarter (28 per cent) of over-55 homeowners 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 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 also say that they are not planning to keep all the money to themselves. One in eight (12 per cent) plan to use some of the money to help their children get onto the housing ladder while 15 per cent say they will use some of the money to assist their offspring with other financial issues.