Studies show more people in UK planning to downsize to fund retirement

Some 12% of the UK’s retired population are planning to downsize their property within the next five years, potentially unlocking an estimated £136.5 billion of housing equity in the process.

This equates to 1.36 million people planning to move to help fund their retirement, according to the data from retirement income specialists MGM Advantage. The data also shows 18%, or 1.99 million retired people, have already downsized.

By analysing house price data, calculating the amount of cash released through moving from a detached property to a bungalow, allowing for stamp duty and moving costs, MGM Advantage has worked out the UK average is £102,851.

This figure represents an 18% increase in cash released compared to just a year ago when the average was £84,776, and is due to the relative increase in the value of a detached property compared to a bungalow.

The data shows there are significant regional variations, with Greater London releasing the most cash at £295,593, while Wales didn’t fare anywhere near as well with a figure of £54,301 released after moving costs.

‘People often refer to their property as their pension, and these numbers show that many are considering downsizing to provide an income boost in retirement. However, the downsizing dream could turn into a retirement nightmare, as some areas of the country fare much better than others. This is simply a reflection of the housing market in the UK,’ said Andrew Tully of MGM Advantage.

‘Banking on your own home to provide an income in retirement does not come without risk. The old adage of all your eggs in one basket still holds true. Careful planning and consideration should be given before making the move, and with returns available from the cash released still very low, it is likely the capital will also be consumed over time,’ he pointed out.

‘If people want to stay in their homes to avoid the upheaval of moving, then solutions like equity release can provide an alternative route. A professional financial adviser will be able to help you navigate the retirement income maze and decide what is best for your personal circumstances,’ he added.

Meanwhile, separate research from Baring Asset Management shows that 7% of non-retired people, the equivalent of around 2.5 million individuals, admit they are planning on selling their primary residence to fund their retirement. This is up 2% from last year.

In total, 16% of people, nearly six million, say they are planning to rent or sell property to fund their retirement, up from 13% last year and the highest such figure since 2009.

The survey found that the economic climate continues to have an impact on people looking to use property to fund some or all of their retirement: the number saying they now plan to sell or downsize a property to fund all of their retirement has risen to 4% from 2% in 2012.

 While the research found that a third (33%) of people that last year said they are planning on either selling and/or renting property to fund some or all of their retirement last year have made no changes to their plans, it also revealed that 3% or 1.3 million people are now planning to rent out secondary properties to fund some or all of their retirement.

‘It is worrying that the number of people relying exclusively on their property to fund retirement has increased again. Property can, of course, form part of a diversified investment portfolio but this year’s research indicates that more people are investing in property as a retirement source and this could mean they are too concentrated in the asset class. Property prices can be volatile so relying on your home to provide all your income to fund retirement is risky,’ said Rod Aldridge, head of UK Wholesale Distribution at Barings.

The research showed that despite a rise in the number of people using property as a retirement source, the number of people saying they have ‘never planned’ to use property to fund their retirement rose significantly from 35% in 2013 to 52%.

Regionally people living in the West Midlands are potentially the most exposed to property as an asset class, with 6% of people saying they plan to sell their primary residence to fund their retirement and 21% saying they plan to sell or rent other secondary properties. 

The least potentially exposed are those in Wales: 5% of people in Wales say they plan to sell their primary residence to fund their retirement and 5% to sell or rent other properties.

‘The level of risk involved in expecting to fund your retirement through the use of a volatile asset such as their own home or from other properties such as buy to let should be fully appreciated and understood,’ said Aldridge.

‘Investing for your retirement is about long term planning and as people are living longer, more emphasis needs to be put on how a lengthier retirement will be funded. It is imperative that people diversify their investments through a range of assets which can, of course, include property,’ he added.