To paraphrase the late Scottish poet and lyricist Robert Burns, the best laid plans often go awry, and if you’re after an example specific to our sector, I can’t think of a better one than the experience many homeowners face when they come to downsize.
Downsizing is a popular financial strategy for those entering retirement, especially for those needing to free up cash to boost their retirement income. However, those strategies don’t always prove as effective as they might initially look.
The first struggle many would-be downsizers face is finding a buyer, especially in the current market with Zoopla estimating that around 44% of homes listed over the past three years have failed to sell.
As a seller, that leaves you with two options: you either sit tight and wait for a buyer, no matter how long it takes, or you reduce your asking price in the hope that drums up interest. But neither of these are particularly attractive options if you need the money quickly, or your pension pot isn’t as big as you would like.
A PLACE TO LIVE
Finding a buyer is only half the challenge; keeping them is also increasingly difficult, as evidenced by recent research conducted on behalf of House Buyer Bureau that revealed that nearly half of all UK home sellers in a chain ultimately see that chain break down.
Then there is the cost involved in moving homes, which can be expensive once you factor in stamp duty, estate agent’s fees, and removals. In fact, consumer champion HomeOwners Alliance says it currently costs more than £13,000, on average, to move home – a sum that can make a significant dent in the ultimate financial benefit achieved. .
Clear all those hurdles and the seller still needs to find a suitable place to live in their area of choice. Bungalows, for example, are a popular option among retirees, but they made up just 1% of new homes in 2024, according to the National House Building Council – and as the supply-demand balance is out of kilter, they are also expensive, often costing as much as 10-20% as much per square foot than houses in the same area.
“Downsizing plans don’t quite stack up in the real world.”
Put all of this together and many homeowners find that their downsizing plans don’t quite stack up in the real world. This is clearly a concern when there are an estimated 15 million people undersaving for retirement, many of whom will have to tap into their property wealth to achieve a decent standard of living if considering reducing their hours or when they exit the workplace completely.
THE EQUITY RELEASE SOLUTION
But there is a solution: equity release. The issue is that few people are hearing about it as an option. That’s because while there are an estimated 35,000 advisers in the UK with the permissions to write mortgage business, only 6,000 have the necessary permissions to advise on equity release. On these numbers alone, it’s clear that equity release is not being flagged as an option to everyone.
For those borrowers that are aware of equity release, many of them hold outdated opinions of what these products are and how they function. Most incorrectly assume that the interest is always rolled up and therefore eats away at the available equity, when in fact these days lifetime mortgages are among the most flexible property finance products around.
As an industry, we need to get better at educating both advisers and clients about the merits of specialist later life lending solutions and the vital role they can play in retirement planning.
PLAYING OUR PART
The FCA is looking at this as part of its Later Life Mortgages Review, which is welcome. But we (and by that I mean those of us working in the equity release market, but also networks, clubs and mainstream mortgage lenders) must step up and play our part.
The first step is having the conversation. If customers don’t know equity release is an option, it will never turn into the solution – a solution that, for many, may be the most suitable available.
To do that, we need to evolve our models and take a more holistic approach to advice, and where that is not possible and a firm’s scope is narrow, the default option should be to refer to an expert who can help.
This is the only way we, as an industry, can truly say that we are doing the best by our customers and ensuring that the outcome they receive truly meets their needs. If we don’t, more and more people will suffer from the downsizing trap and have poorer retirements as a result.
Best laid plans and all that.
