How downsizing can upsize your retirement

Selling up and moving into a property that better suits your needs can give your retirement fund a significant boost, new research shows.

Estate agency Savills found that by moving from a four bed to a two bed home, downsizers across England and Wales can unlock an average of £305,090.

Based on an average life expectancy of about 20 years for people aged 65, this equates to a tax-free income of £1,218 a month for the rest of their life.

£2.5tn in equity

According to research by Savills, older generations have more than £2.5tn in equity tied up in property, which could potentially be used to help fund their retirement or to help children or grandchildren get onto the housing ladder.

There are 1.29 million owner-occupiers aged 65 and over living in a four bedroom house, and those who took out their mortgage in the latter part of the 20th century have reached the point where they have paid off their mortgage.

Homeowners in London can expect to unlock the most equity by downsizing. On average, Londoners moving from a four bedroom family home to a two bedroom property can unlock £2,523 a month, followed by those in the South East at £1,485 a month.

Those in the North East unlock the least by downsizing, at £826 per month on average.

"This analysis lays bare the north-south divide when it comes to downsizing," said Lucian Cook, head of residential research at Savills. "Those who live in typically more affluent areas in London and the South East have the option to use housing equity to make a meaningful contribution to retirement income, despite typically having slightly longer life expectancies. For those in the Midlands and the North there is far less to be gained by downsizing and they're therefore likely to leave downsizing until later in life, if indeed they downsize at all."

Suitable properties

Among the factors holding back older homeowners from downsizing are a lack of suitable smaller properties, according to separate research by home buying service Spring and property data platform PropAlt.

"The focus shouldn't only be on building more homes for first-time buyers. It's about building the right types of homes," Nick Sanderson of retirement property firm the Audley Group told the Daily Mail.

Sanderson added that increasing the supply of age-specific housing "would encourage older homeowners to move out of large family homes, freeing up supply and creating movement up and down the ladder."

'Significant boost' to retirement funding

Those considering downsizing will have to weigh up the potential financial benefit versus the emotional impact of moving out of a family home which holds many memories.

"Understandably, homeowners have traditionally been reluctant to downsize given their attachment to the former family home, but it is increasingly commonplace for people to look at their home as a way of supplementing their pension provision," said Lucian Cook from Savills.

"Those approaching, or having already reached, retirement age have been some of the biggest beneficiaries of house price growth. By moving to a property that better suits their needs, downsizers -- particularly those in high value locations -- can give their retirement funding a significant boost, particularly vital in the face of rising living costs."