We’ve written several articles on how the housing crisis is preventing younger generations from buying their own homes. However, recent news has shone a light on the other end of the spectrum. According to experts, there are many over 55’s trapped in unsuitably large homes. (1)
The news was cemented by the Government’s recently released housing White Paper, entitled “Fixing our Broken Housing Market.” In article 4.43, a proposal detailed plans to help older people relocate, which could help their quality of life, and also free up existing homes for buyers. At first glance, the idea of uprooting an elderly individual can seem a bit concerning as it’s likely that individuals will have strong emotional connections to their homes, the desire to be near friends and family, and a sense of belonging in their existing communities. (2)
However, it’s important to know that the proposal in question only refers to individuals who actually wish to leave, but don’t have the information, practical or financial means to do so. The proposal specifically states, “Helping older people to move at the right time and in the right way could also help their quality of life at the same time as freeing up more homes for other buyers.” (2)
Jeremy Blackburn, Head of UK Policy at RICS, said that helping older generations downsize could free up 2.6 million homes. In fact, he noted that almost 33% of over 55-year-olds have thought about downsizing in the last 5 years. However, research shows that only 7% actually did so. Blackburn appreciated that it would need to be handled respectfully and sensitively. However, if it’s an elderly individual’s choice, then the government should offer practical and financial support, as well as any necessary information. (3)
According to analysts, if individuals who were put off by the costs of downsizing actually decided to sell, 111,000 additional family homes would be added to the market. (1)
Recent news stories have highlighted this exact point: that elderly individuals want to downsize, but feel trapped in inappropriately large homes. Take for example the article published by The Telegraph, entitled, “Our £820,000 house is too big - but there’s nowhere to move to.” A lack of manageable, appropriately sized properties, combined with moving costs and stamp duty charges, could stand in the way of potential movers. (1)
Case Study: Richard Hemming, 77 and his wife, Marion, 71 (1)
Current property: A 5-bedroom house with 2 and a half acres of land.
Current property value: £820,000
Required maintenance: £30,000 for essential maintenance, £10,000 mortgage
Cash savings: £10,000
Restrictions:
- They can’t build a small house on their existing plot of land as its deemed an area of outstanding beauty.
- The amount of supply available is limited, as they live on the Isle of Wight.
- They don’t want to move away from all their friends.
- They want somewhere that’s all on one level, however, research shows that only 1 in 63 properties are now built on one level. (4)
- Their preferred choice of a bungalow might only be available on the market at a premium price.
- They want to have liquid capital to help pay for their grandchildren’s school fees.
A costly solution is on the rise
Downsizing might not be an option due to restrictions like the ones above. And so, a method of borrowing termed “equity release” is trending amongst older homeowners. (1) Equity release is aimed at elderly individuals who have capital in equity, but not much liquid capital.
The term can also be called a “lifetime mortgage,” and most of them promise a “no negative equity guarantee.” (1) This essentially means you’ll never have to pay back more than the price of your house. The loan is paid back by the sale of the property when you die or if you go into care. In 2015, the average rate of an equity release mortgage was 6.06%. (5)
Experts say that individuals wouldn’t have to borrow this way if appropriate homes existed. However, the trend is becoming more common, as total sums borrowed in this way is rising by 20% per year. (1)
Written by Jenna Kamal
Sources
- http://www.telegraph.co.uk/pensions-retirement/financial-planning/820000-house-big-nowhere-move/
- https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/590043/Fixing_our_broken_housing_market_-_housing_white_paper.pdf
- http://www.rics.org/uk/news/news-insight/comment/housing-white-paper/
- http://www.telegraph.co.uk/news/2016/07/19/britains-bungalow-crisis-chronic-shortage-means-buyers-pay-up-to/
- http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/11425680/Equity-release-mortgage-costs-fall.html
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