Older homeowners have unrealistic expectations about how much money they will raise from downsizing as a lack of suitable homes drives up prices, according to research for Key Partnerships.
Its nationwide survey of estate agents found firms are seeing growing demand from clients looking to downsize to raise cash with 66% reporting a rise in enquiries over the past year, Key’s study found.
The main reason clients want to downsize is to raise cash with 60% of estate agents saying customers aim to boost retirement income while a third say clients are looking to clear mortgages.
But estate agents warn customers are overestimating how much they will make as a result with 72% of estate agents saying older homeowners have unrealistic expectations about the money they can make.
The major reason is a lack of suitable homes for downsizers which is forcing up prices, estate agents say, with the result that they are increasingly recommending equity release plans, which enable homeowners to access property wealth without paying interest and repay the loan when they go into care or die.
The research found 42% of estate agents regularly recommend equity release plans as customers struggle to achieve the savings and extra money they are looking for from downsizing.
Key’s research found 85% of estate agents believe prices for suitable homes for downsizers such as bungalows, retirement homes and houses suitable for the less mobile are being pushed up by lack of supply.
Will Hale, director at Key Partnerships, said: “Downsizing is attractive for millions of older homeowners as part of retirement planning as it appears to promise tax-free cash and is clearly driving increased enquiries for estate agents.
“But older homeowners are struggling to achieve their financial objectives with the combination of rising prices and a lack of supply meaning that downsizing simply does not add up for clients.
“Estate agents are increasingly recognising that equity release is a real alternative which enables homeowners to stay in their home and raise cash but it should be part of all conversations with older homeowners considering downsizing, when for many the maths simply doesn’t add up.
“Whilst as an estate agent selling houses is the major revenue driver, where the economics don’t work from downsizing, clients will simply withdraw their properties from sale. Estate agents who increasingly discuss equity release as a potential alternative are able to benefit from an additional revenue stream by referring potential clients to a specialist.”
The research found 57% of estate agents say there is a lack of suitable properties for people looking to retire while 63% say there are not enough bungalows available. Raising money is not the only reason people downsize however, the research shows. Around 48% want a home that is easier to manage while 21% want to reduce household bills.