Downsizing surge set to grip market

More parents are expected to move to smaller properties in coming years, releasing equity to help their children on to the property ladder.

Downsizers are typically in their late 50s or early 60s, and have largely or completely paid off mortgages on their main homes, which they then sell for more than they spend on their next, smaller properties.

Analysis by Savills, the estate agent, estimates that the total equity held by over-55s in the UK is about £1.4tn. However, it believes that only about £7bn a year has been unlocked by downsizing over the past three years – just 3.5 per cent of the total value of all residential property sales in the period.

Savills estimates this could rise to £12.4bn a year by 2017 as downsizing becomes more popular, with parents looking to help their children buy their first home.

“The affluent downsizer is a huge part of the UK buying market at the moment,” said Ashley Mason, partner at Knight Frank’s office in Guildford, Surrey. “The driver for the first step in the downsize decision is almost always financial – a desire to release equity for their kids’ first homes, and also thinking some way ahead, to avoid death duties,” he added.

Homeowners in London have the potential to release the largest amounts of equity, an average £512,867, by moving from a four to a two-bedroom property. In comparison, those downsizing in Scotland and North East England could release, on average, £161,052 and £150,490, respectively.

“The amount of equity released is substantially boosted by dropping two bedrooms rather than just one, and from a larger four-bedroom property to a two-bed rather than from a three to a one-bed,” said Lucian Cook, research director at Savills.

The average cash release across the UK by downsizing from a four to a two-bed home is £214,213, in comparison to £123,596 by moving from a three to a one-bed property.

According to Cook, downsizers now account for 22 per cent of Savills’ sales of £1m-plus properties in London, and 38 per cent of sellers in the £1m-plus market outside of the capital.

Hamptons International reports similar figures. Paul Everett, regional director at the estate agent, said 15 to 20 per cent of its sales over the past year in commuter areas such as Buckinghamshire, Berkshire and Hertfordshire have been triggered by downsizers.

“They are usually people retiring, looking to move from a four or five-bedroom house into a smaller property within a similar area once their children have flown the nest,” he explained.

David Forbes, head of Savills Private Office, said he has seen a growing number of his wealthy clients in London downsizing their home. Many move from their large central London house to a new-build apartment, gifting around £500,000 to each of their children to help them on to the ladder.

Other agents say they are increasingly seeing people downsize at a younger age than before, with homeowners going for a smaller version of what they have – rather than moving into a small flat.

“They may want to cash in on their lifetime of careful mortgage repayments, yet still like the idea of having a house and a garden,” said Mason.

However, homeowners looking to move to a smaller home should seek advice on whether they can port their existing mortgage, if they still have one.

According to Jonathan Harris of mortgage broker Anderson Harris, borrowers should not assume that their lender will assent to a transfer. “If you are on an exceptionally cheap legacy rate or the lender doesn’t want to lend to an ‘older’ borrower, you may find your application is refused,” he warned.