More downsizers cashing in on property wealth for retirement

More downsizers cashing in on property wealth for retirement

With UK house prices consistently climbing for many years, owners and investors have achieved high levels of property wealth, and some are now choosing to downsize. 

In 2022, the total value of UK housing stock hit a record £8.68trn, according to research from Savills. This was a 5.1% annual increase in value, with growth of £425bn over the 12-month period – and £1.62trn more than three years previously.

In terms of net housing wealth, this hit more than £7trn for the first time during the year, due to the fact that around £1.66trn worth of UK housing stock is mortgaged. Around £3.34trn worth of property wealth was owned outright by mortgage-free homeowners.

House prices in many parts of the country, particularly the north and the Midlands, have performed extremely strongly in recent years, surpassing London and many parts of the south. And now, it seems a growing number of people are using that acquired property wealth to release some cash.

Equity-rich owners on the move

Those who have built up high levels of equity in their properties are in a good position right now, due to the fact that mortgage rates have been on the rise for several months.

Some recent research from Savills has found that there has been a significant rise in the number of people using that equity to move to smaller properties, with 53% of the company’s 130 UK offices saying they had seen a rise in people on their books looking to downsize.

Most people who bought or invested in property a decade or more ago will have seen its value climb, and bricks and mortar remains one of the most popular assets to own in terms of its long-term stability. There are many people, too, who use property investment as part or even all of their retirement plan.

According to one study by Saltus towards the end of last year, 84% of high-net-worth individuals use their property wealth for retirement. A further 70% of respondents said they would fund at least 25% of their retirement with property investments.

Property wealth to help family

There are other ways people who have accumulated property wealth are spending their cash upon selling or downsizing, according to Savills.

Andrew Perratt, head of UK residential at Savills, said: “Equity-rich older homeowners are some of the best placed to moved in today’s market as they are less likely to be impacted by higher mortgage costs.

“Most will have enjoyed significant house price growth over their period of ownership, while owners of large family homes will have seen their properties appreciate substantially over the course of the pandemic, meaning they are sitting on a significant reserve of equity.

“Across our network, our downsizer vendors are telling us that they will prioritise using the extra equity to help family with their finances, or to supplement a retirement fund and reduce overheads.

“While realistic pricing is crucial in today’s market, we are still seeing a shortage of larger family homes.”

The research also found that many people who wanted to downsize were put off by the difficulty of finding the right home to move to, which was reported by 79% of Savills’ agents. Most, said the report, plan to move to a smaller home that is located close to their existing one, rather than relocate.

Another major point to mention is that those looking to downsize may be looking to avail of the cheaper bills and running costs that often come with living in a smaller home. Many agents have noticed an increase in interest in flats and apartments for this reason, as well as new-build properties that tend to be more energy efficient.