IW&I’s study shows that 3.52 million (7%) homeowners have already downsized in the past five years of which two thirds were over 55.
On average they were able to raise £98,000 in equity – yet those who are planning to buy a cheaper home expect to make £120,000 – far more than they are likely to end up with.
Of those who have already downsized, over four in ten (43%) ended up spending more than they initially planned largely because they were unwilling to make as many compromises as they had originally intended on buying their new home. Just 14% of downsizers came under budget.
When push came to shove, downsizers were least willing to compromise on their new home’s location, followed by its overall condition and size. One in ten (9%) downsizers admitted to spending more because they fell in love with a property that was over-budget.
When looking at the reasons for downsizing four in ten (40%) were driven to do so because their existing home was too expensive to run while one in five (20%) moved in order to help pay for retirement.
Only 3% were using the proceeds to help pay towards homes for their children and grandchildren.
Interestingly, this is significantly less than the 10% of future downsizers who said they plan to help their children and grandchildren buy property (10%), which suggests they are overoptimistic about how much spare capital they will have.
Nick Gartland, senior financial planning director, Investec Wealth & Investment, said:
“Downsizing may be a popular way to release capital but homeowners are often wildly over-optimistic about the amount they will crystallise. This gap between expectation and reality can have a significant impact on their financial circumstances post retirement.
“This study reinforces our own experience with clients in that more often than not downsizing turns into samesizing as people find it far more difficult than they thought to move to a much cheaper home.
"The situation is often exacerbated because they allow an insufficient amount to cover the costs of moving. With the housing market remaining in the doldrums, homeowners shouldn’t rely too heavily on downsizing – both in terms of being able to sell and buy a new home and in the amount they generate as a result.”
Reasons why downsizers spent more than planned on their new home:
- Location: 20%
- Overall condition: 15%
- Size of property: 11%
- Fell in love with the home: 9%
- Size of garden: 7%
- Lack of choice on the market: 5%
