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Are we swapping downsizing for equity release?

  1. 13 February 2019
  2. By Andi Forsythe

With people reluctant to downsize to smaller homes, equity release seems to be the popular alternative. But what does that mean for the housing market?

People aren’t downsizing as they once were, it seems. With the cost of moving continuing to grow, alongside fairly sizeable Stamp Duty fees, older people who would have considered downsizing are tending to stay put. Perhaps they can’t find anything in the same area for an appropriate price, and they would be forced to move further afield. Perhaps, with children and grandchildren and a local support network they simply don’t want to uproot their lives.

Houses carry memories and if you are comfortable in your home, even if it is rather big for you, then there should be no obligation to sell up. Equity release seems to be stepping in to replace downsizing, with the Equity Release Council showing that lending activity in 2018 grew for the seventh year in a row to reach almost £4 billion. This is up 29% from 2017.

Our data shows that downsizing has been on a downward trend from 2014, where over 35% of sales were from those downsizing. It briefly became more popular in mid 2018, where it peaked at 28% but it continues to dwindle towards 25% in January 2019.

Equity release allows home owners to access the equity within their property without moving. Their chosen lender will give them access to the sum they want, either in a lump sum or on a month by month basis, and when the property is eventually sold, the lender will be repaid. The flexibility and variety in these services may be making them more appealing – with some offering caps that stop the interest exceeding the total value of the house, and the opportunity to ‘ringfence’ a portion of the property to leave to loved ones.

However, if more people are choosing to stay put and release equity instead of moving, that will affect the movement through the property market. Traditionally, it was understood that first time buyers got on the ladder with a ‘starter’ home, then moved on to a bigger home for a family or with more space when they could afford it. If those at the top of the property ladder aren’t moving out, the availability of those larger properties is going to cause issues.

Of course, releasing equity doesn’t mean those homes won’t come back onto the market eventually and with first time buyers now buying later, the ladder may continue to be in line, just over a longer period of time.

Rob Houghton, CEO of The Law Superstore, a comparison site for legal services, has this to say about equity release offers:

‘Whether you decide on a Lifetime Mortgage or a Home Reversion, equity release options are becoming more varied in support of the customer. From deciding to roll up interest into the total sum, or paying it off monthly, and with some providers offering a no negative equity guarantee, users really can continue to live in the home they love whilst benefiting from the money they paid into it.’

Of course, in some cases, that released equity is used to support children or grandchildren with deposits for their own homes. Whether downsizing or using equity release, having more support and choice for those later in life can only be a good thing.

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