New research from financial services provider OneFamily has found that 24% of downsizers ended up with less money than they expected when selling their property, with legal fees, stamp duty, moving and renovation costs eating into their profit.
43% of older homeowners have moved to a smaller property to unlock money tied up in their home, 20% of downsizers felt disappointed with their overall return.
Once the associated costs of selling up and moving are taken into account, the average downsizer ends up with approximately £105,900 from the sale of their property – £28,650 less than anticipated.
In addition to receiving less than expected, 48% say that the expenses from fees, stamp duty and moving and renovation costs accrued to more than they bargained for and they overspent by £12,480 as a result.
While some underestimated the costs involved in moving, others thought they would make more from the sale of their property, which meant they felt short-changed after the move. Of those who made less than expected from downsizing, 10% had to reduce the asking price as a result of a difficult housing market and a further 57% accepted an offer lower than the asking price.
On average, it took downsizers just over seven months from when they started the selling and moving process to receive the funds. OneFamily said it is also likely that those thinking about downsizing within the next five years might have to contend with a lack of supply, particularly as 41% plan to move to a bungalow, which despite the demand are in short supply.
With the average worker reaching retirement with just £28,000 in pensions savings many need to cash in on their property wealth in order to support themselves in retirement. One in five say that they felt like they had no choice but to downsize in order to boost their pension income, although of these, 25% were sad to leave their old home behind and 13% would have preferred to stay in the same home given the choice.
An alternative to downsizing is taking out a lifetime mortgage whereby homeowners can release capital from their property without needing to move home. Homeowners can borrow up to 50% of the value of their home, which based on the average property price of £247,886, would give homeowners a generous £123,943 to help fund their retirement.
Of those who downsized, 31% said they were not aware that a lifetime mortgage was an option.
Nici Audhlam-Gardiner, managing director of lifetime mortgages at OneFamily, said: “It’s great that many people now have longer active retirements, however they come at a cost and many pensions won’t stretch far enough.
“Many retirees feel they have no choice but to downsize but advisers play a key role in helping them understand there are different ways of releasing capital to help fund later years.
“It’s unsurprising that many people don’t want to move as they will have got their home just as they like it, and moving to a new house is often stressful and expensive.”