When is the right time to release equity?

The eternal property dilemma for home-owning over-55’s is not ‘whether’ to release equity tied up in the wrong house, but ‘when’ will the current house become the wrong house and a burden?

Research by Age Partnership, a retirement income adviser, recently found that English people aged over 55 currently hold more housing wealth (£1.5 trillion) in their homes, more than the annual GDP of Italy (£1.4trillion).  This number is made up of the 39% of that age group who have no outstanding mortgage, but many more will have significant wealth in their properties meaning this is probably a conservative estimate.  Added to that, the over-55 population is due to grow by a third in the next 20 years, meaning that by 2036, not taking into account house price inflation, that number will be £1.9 trillion.

However, Stacks Property Search diagnose the dearth of housing stock is more about people living in the wrong house, and less about price and wealth.

There are 750,000 empty houses in the UK, and if these were combined with the spare accommodation enjoyed in particular by the ’empty nest’ generation, there would be a significant increase in availability.

Changes in inheritance tax rules mean that grandparents will continue to live in houses that are too big for them because it makes sense financially, but many would prefer to downsize and release capital to put a roof over their children’s heads. Perhaps this could be offset by a spare bedroom levy?

The cost of moving has become so high in terms of fees and taxes that the turnover of property has slowed dramatically. And the buy-to-let market has grown because the older generation choose to invest in property rather than pensions, and other financial instruments sold by a financial services industry that’s regarded with some suspicion.

“Generation rent” isn’t necessarily a bad thing. Buying a property costs around 6% to 8% of equity in terms of fees and this goes some way to justifying rent paid in the short term for a more mobile generation.

For those who do want to downsize, it pays to be realistic about what your decision will entail.  You will need to accept that you are going to get a lot less house for your money. Trading down from a large five or six bedroom family home to a three or four bedroom cottage will release about 30% of the capital, but result in only about half the square footage, and half the outside space.

But remember that, with an ageing population, this can be a very good investment, as demand for good properties to accommodate a more elderly population is likely only to rise.

We have more on how your local Stacks Property Search expert can help you navigate the process here.

Also seen in:

Property Industry Eye : Agents question if it’s right to celebrate how much property wealth over-65s hold