Increasing number of older homeowners considering downsizing in retirement, says new report

Just under 50% of over 55-year-olds surveyed by the International Longevity Centre and retirement housing provider McCarthy and Stone said that they were either considering downsizing, or had already done so. The researchers said that more had to be done to support this area of the housing market (26-page / 2.9MB PDF), given the policy attention paid by the UK government on first-time buyers and starter homes.

The report said that although downsizing was "not for everyone", there was a "real need to provide greater choice to enable those who want to move to do so". This could be done using various policy initiatives include planning reforms to benefit retirement housing, exempting older households from stamp duty and raising awareness of downsizing as an option through "advice and guidance".

Pensions expert Robert Lawrence of Pinsent Masons, the law firm behind Out-Law.com, said that downsizing would only grow in popularity among older people due to "the lack of suitable alternative pension provision".

"This is already evident from the report as people are using the funds released from downsizing to enhance their day to day lives, top-up their pensions and to reduce debts," he said.

"When an individual is considering his later life income and needs, he needs to be looking at his property wealth alongside his retirement benefits more generally. It is therefore important that the government takes steps to ensure property wealth and options such as downsizing and equity release are factored into the remit of Pension Wise," he said.

Those aged 65 and over will account for 60% of the projected growth in UK households over the next two decades, according to the report. However, many of those people were "stuck" in their current housing due to a lack of homes built specifically for the needs of the older population. The UK has one of the lowest rates of over 60s moving into retirement housing when compared to other developed countries, at 1% in 2011 compared to 17% in the US and 13% in Australia and New Zealand, according to the report.

Of the 1,252 respondents to the survey that were homeowners, 32.5% said that they were considering or expected to consider downsizing, while a further 15.6% had already done so. Over one third of respondents, or 35.2%, said that they would put the money released from downsizing into a savings account, while 34% said that they would put it towards a pension.

The findings of the survey support calls from the property industry for the government to review the rules surrounding equity release, which allows those aged over 55 to access some or all of the value of their home as cash. Equity release products are relatively popular in the US, but considerably less so in the UK and EU. The Financial Conduct Authority (FCA) has said that it will consider equity release as part of its review of the UK mortgage market, planned for this year, while the House of Commons' Work and Pensions select committee has recommended that the government-backed Pension Wise service be examined to take into account individuals' property wealth, benefit entitlement and care costs, among other factors.

Lawrence said that the challenge for retirement market product providers was the need to focus on "delivering more innovative solutions to the needs of individuals in later life". This could take the form of specialist housing, as suggested by the report, or long-term care and income drawdown and annuity products, he said.