It’s widely acknowledged that the UK has a supply crisis when it comes to property – in other words, there’s too much demand for homes and not enough to keep pace.
One solution to this problem that is often mooted is an increase in homeowners downsizing, in turn freeing up more property for second, third and fourth-steppers – the sort of people who often require a bigger abode to house a growing family.
However, there are signs that not enough older would-be movers/last-time buyers are willing to do this. We take a look at the current situation and how more people could be incentivised to downsize.
What is downsizing?
Pretty much what it says on the tin – downsizing is when homeowners sell up and buy a smaller property that is more suitable to their needs. Often older people whose children have flown the nest or middle-aged couples who have recently waved goodbye to their last adult child still living at home are the most likely to be downsizing – or considering downsizing.
As people enter retirement or become ‘empty nesters’, the need for space is less and it often makes financial sense to scale down to somewhere smaller – where both the mortgage and maintenance costs will be much lower. Household bills will also be lower, keeping a home in good condition is less of a bind, and downsizers are likely to have more disposable income to spend on things other than housing.
Shrinking the size of their home could help people have greater financial security, providing more funds to save, spend or share out among family and loved ones. Of course, there are possible downsides too.
Moving house is often costly and stressful – with moving costs, stamp duty, legal costs and estate agent fees all needing to be factored in. What’s more, in a smaller home there will be less space for belongings and furniture; if a person is used to a larger home, this could take some adjusting to.
Downsizers may also have to settle for lower than their asking price to achieve their downsizing dreams and, in their new abode, there may be less space for house guests such as grandkids and family friends.
What are the incentives and why are people reluctant?
A recent report by Lloyds Bank suggested that homeowners could receive a windfall by selling their house and moving to a bungalow, but nearly half are choosing not to do so.
The research found that homeowners could earn £110,000 (the average difference in value between a detached house and a bungalow) by selling up and downsizing. In some parts of the country, this figure could be more than double that.
Despite this, some 45% of over-55s are planning to stay put in their larger family homes even after their children move out. Strong community ties and financial comfort were cited as the main reasons for sticking with the status quo.
But homeowners in certain regions could be missing out on a considerable windfall by opting to stay put. Homeowners in the South East would benefit most from moving to a smaller home, earning a cool £273,466 on average by selling up. The Lloyds research was based on the average price of a bungalow and the average price of a detached house, and working on the assumption that a downsizer owns their home outright without a mortgage.
London, by comparison, doesn’t offer much of an incentive to would-be downsizers, with a potential windfall of just £54,780. There are also few bungalows on offer in the Greater London area, which could make downsizing to the capital problematic.
In Scotland, downsizers could make nearly £90,000, while Welsh downsizers could pocket just over £118,000.
Of the 45% who weren’t considering downsizing even though their children had moved out, 40% said they had strong ties to their local area which meant they wanted to stay put, while 30% said they had no need to downsize because they were financially comfortable in their current home.
For many, too, space was still a key consideration, with 28% wanting a large enough home to look after grandchildren.
Advantages versus disadvantages
Pros of downsizing include:
- Bills and maintenance/repair costs will be lower in a smaller home.
- Single-storey bungalows may better suit the lifestyle needs of people later in life, with a lack of stairs often proving popular to people as they get older.
- Homeowners can take equity out of their home, freeing up cash to fund retirement and help out younger family members.
Cons of downsizing include:
- Even if a home is mortgage free, downsizers still face costs when moving home – including stamp duty, estate agent and conveyancing fees, survey costs and moving costs.
- A larger home may rise in value quicker than a smaller dwelling, meaning staying put for a few more years and increasing profits could be a wise move.
- Downsizers will have less room to store belongings and less space to look after grandchildren or host guests.
How could downsizing help the market?
An increase in the number of people downsizing can be beneficial to the market in helping to free up more supply for home movers. Families with young children, children of school age or older teenagers/young adults may be seeking a larger home to comfortably house their offspring.
If they are frustrated in their attempts to move by a lack of suitable properties, this then feeds down to the wrung below, the second-steppers looking to move on from their starter home or the first-time buyers eager for a bigger home to kick-start their journey on the property ladder.
A lack of suitable homes for those keen to downsize is also a problem, as is shown by the shortage of bungalows in London. The latest English Housing Survey says bungalows account for just 10% of British owner-occupied housing stock, with these dwellings also unevenly spread across the country. A tiny number of bungalows tend to exist in major cities.
Despite this, there are a very small number of new bungalows being constructed in the UK, making up only 2% of completions in 2017-18. This is equivalent to a rather paltry 2,579 new homes.
Naturally, not every downsizer will be seeking a bungalow – with smaller flats or homes also an option – but many will. And, at present, that demand is not being met. If people are going to be encouraged and incentivised to downsize, to free up more housing stock, they need to have the homes to move to.
Sometimes house-builders are so focused on providing homes for first-time buyers they negate to take into account last-time ones. This needs to change if the number of downsizers is to increase, along with greater awareness about the possible benefits (both financial and otherwise) of moving to a smaller home.