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| TUESDAY 31ST MAY 2005 |
 DOWNSIZING
MAY NOT BE BEST
Many Britons planning to downsize or move to another area as
part of their pension strategy may be in for a shock, says
Prudential.
A new report from the insurer called, ‘Cost of moving
home in the UK’, reveals that moving costs are a massive £6,200
on average – or up to £13,500 in London.
This is particularly bad news for people whose reason to
move is to release equity, as these moving costs – stamp
duty, legal fees, estate agents and removal fees – all
eat in to their released cash.
If that wasn’t bad enough for these potential ‘downsizers’ (a
downsizer being someone moving to a less expensive property
to get their hands on some extra cash), two-thirds will be
out of pocket. Only those who own detached houses or live
in London and the South East, can hope to release over £50,000
by downsizing, says the report.
For the 18 million Britons who claim that property will
form part of their pension, this may come as a shock. The
gap between income in retirement and desired income in retirement
is £4,000 on average. That’s over £100,000
for a retirement of 25 years.
And although £1,100 billion is tied up in equity in
UK homes, it will prove for many that they are unable to
access this cash by moving home.
Downsizing only works for some regions
Only a move from London and the South East would release
more than £50,000. The table below shows that moving
from London would release at least £99,000, no matter
which region a person moves to. Moving from a similar size
property in the South East to the North would release £60,256.
The vast majority of regions within the UK would not be
able to release cash by moving.
People living in Northern Ireland cannot move anywhere to
release equity. A move would cost them money. The same is
true for a number of different regions.
This does not even include the moving costs. If someone
in the South East wanted to move to the South West, and remain
in a similar sized house, they would only gain £20,720
in equity. Almost a third of that would be used in moving
costs, leaving them with only £14,520.
Where do people want to move?
Half the population want to move location. Of those, the
most popular choices are abroad (9 per cent), the South West
(7 per cent) and the South East (5 per cent). The bad news
is that none of these choices will release large amounts
of equity.
The other half of the population want to stay in the same
area. For them, if they want to release equity, the only
option is to move to a much smaller property. However, Pru’s
research reveals that moving from a semi-detached house to
a terraced house in the same area will not release more than £40,000,
no matter where a person lives.
Downsizing to a smaller home
The average person moving from a semi-detached house to
a terraced house would release £22,000 in equity. Again,
this figure does not include moving costs. Given the average
moving cost is £6,200 – this would eat in to
over a quarter of the released equity.
Across the different regions, different amounts can be released
when moving to a different size home. In every region, moving
from a detached home releases the most equity.
Interestingly, the pattern is not the same in every region.
In some regions, moving to a flat releases the most equity.
In other areas, moving to a terraced house is more profitable.
In many of UK’s northern regions, moving from a bungalow
will release more equity, whereas in the South, they seem
less popular.
A full breakdown of the cost of moving home is as follows:
Ali Crossley, Director for Prudential’s Lifetime Mortgages,
said: "With over a million pensioners planning to move
home for financial reasons this report makes for a sober
read. The long-held belief that downsizing is a way to plug
the pension gap is only true for a minority of people, who
live in detached houses or London and the South East."
"Also, not only is it practically impossible for people
in some regions to downsize to release equity, it is true
that the large cost of moving home will eat into their profits.
They may not end up with as much cash as they expected."
"This sounds like bad news for those who were planning
to use their property as their pension, but there is an alternative.
Lifetime mortgages are becoming increasingly popular as a
way of releasing equity from your home. Whether that is to
maintain a standard of living in retirement, to take a holiday,
or to help mitigate inheritance tax, lifetime mortgages allow
people to get their hands on their money while they are still
in their home."
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