There’s little doubt that downsizing is less of a factor in the housing market than it used to be - so should more be done to encourage it?
For estate agents the answer will almost certainly be yes, and for good reasons.
Downsizers are usually cash-rich so fall-throughs caused by mortgage-related problems are very few; anecdotally, agents tell me downsizers view fewer properties and are more focused than younger buyers, so are easier and quicker to deal with; in addition, they have likely been through several house moves so know the ropes and are deterred less by surveys, EPCs or other possible hiccups.
However, problems and deterrents still exist for this group: stamp duty is one issue, of course, and there is a reported shortage of specialist retirement housing (although many of the examples of this I see in my professional capacity take months or years to sell, suggesting that in reality asking prices and service charges may be unappealing).
Increasingly, though, an attractive alternative to downsizing is equity release.
Once ER had a bad name but no more - it’s increasingly regulated and rip-off merchants common in the 1990s have long gone, thankfully. As a result, it’s growing...and quickly.
Last month the Equity Release Council revealed that this market is no longer niche.
Owners aged 55-plus unlocked a record £971m from their homes in the second quarter of this year, between April and June. Lending in the period increased by 12 per cent compared with the first quarter of 2018 - when £870m was lent - and by 39 per cent year-on-year from the second quarter of 2017.
This latest quarterly increase was broadly in line with the average 11 per cent growth seen from quarter to quarter since Q1 2016 - the Equity Release Council says this shows that ER “has taken up a position as a mainstream financial solution in later life.”
Good for the Equity Release Council and no doubt good for the individuals who have released all that money for their later life. But here’s the thing - should it be taxed?
One agent recently door-stepped me saying it should be taxed, to provide something like a level playing field. His argument goes like this: “Downsizers are taxed with stamp duty and the costs of moving - those taking equity release are not. Where’s the fairness in that?”
There are pros and cons of course.
Firstly, anything that an older owner does with his or her released equity will be taxed (and that applies whether they put the money into savings or buy a Maserati).
Secondly, if you tax equity release because, say, it may be unearned income ... well, what about taxing all the other people who make money through appreciation of their property? They too will be enjoying unearned income.
On the other hand, there is little doubt that downsizing is declining - and that this trend spells bad news for society as a whole, not just for estate agents wanting the instructions.
Research in recent years by the Nationwide has shown that 49 per cent of homes have two or more spare bedrooms; the government’s own English Housing Survey 2014/5 says 51 per cent of owner-occupied homes in England (7.3m) are under-occupied, up from 39 per cent back in 1995/6.
And all the while, as we know full well, there is an overall shortage of housing - made worse, undoubtedly, by equity release encouraging older owners to stay put.
There are no easy decisions in this debate and it pays to tread carefully.
There was uproar a few years ago when a think-tank was a little heavy-handed in the wording of a report which hinted that older owner occupiers should be obliged to move to a more appropriate-sized home. This was despite the fact that the social housing sector has for many decades had specific criteria on what constituted under-occupation, and councils and housing associations have been forceful in imposing such rules.
Yet just because this is a sensitive issue doesn’t mean it should be avoided.
We’ve got a housing shortage, and as an industry we know a shortage of stock is holding back not just ‘the market’ but thousands of families who would buy freed-up larger homes.
Should we tax equity release? At least we should debate it...
*Editor of Estate Agent Today and Letting Agent Today, Graham can be found tweeting all things property @PropertyJourn
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Something else for the government to apply a tax to! Lots of the ER is being handed to kids to buy their first house - because they need such large deposits. Why do they need large deposits? Oh, that was government inspired too.
So I can acquire funds, save money and still provide a possible home for my children should it be necessary if they cannot afford to buy or rent at any time. The losers - the government (self inflicted) and estate agents with a reducing potential income stream to keep their declining High Street business alive. Sometimes, life does get better and better.
For an awful lot of people, they're simply taking it prior to death for whatever reason; to help kids onto the housing ladder, to pay for an extension, new kitchen or a car of some sort. They do it in my experience because they see little alternative.
I personally know of people who have done this on modest two bed homes, so it's not just down-sizing.
For a majority of people, were they not to do so, their estates would go to the kids anyway with little or no inheritance tax.
I think this idea is a pretty shabby one by and large. And, for the record, the bad old days of the 90's aren't behind us. Elderly, vulnerable people who are too proud to speak to their children might take advice which they purport to understand, but the costs are enormous. I know of one old lady whose husband lived longer than he expected (89) and who is also an unexpected 94 years old. They borrowed a pretty insignificant sum of money and now have very little equity left in a home worth over quarter of a million. Compound interest of this type is very painful indeed, especially when they would easily have been able to afford to pay the interest on the loan.
I sincerely hope that this whole industry will be the subject of the next miss-selling investigation.
For an awful lot of people, they're simply taking it prior to death for whatever reason; to help kids onto the housing ladder, to pay for an extension, new kitchen or a car of some sort. They do it in my experience because they see little alternative.
I personally know of people who have done this on modest two bed homes, so it's not just down-sizing.
For a majority of people, were they not to do so, their estates would go to the kids anyway with little or no inheritance tax.
I think this idea is a pretty shabby one by and large. And, for the record, the bad old days of the 90's aren't behind us. Elderly, vulnerable people who are too proud to speak to their children might take advice which they purport to understand, but the costs are enormous. I know of one old lady whose husband lived longer than he expected (89) and who is also an unexpected 94 years old. They borrowed a pretty insignificant sum of money and now have very little equity left in a home worth over quarter of a million. Compound interest of this type is very painful indeed, especially when they would easily have been able to afford to pay the interest on the loan.
I sincerely hope that this whole industry will be the subject of the next miss-selling investigation.
I agree, by & large ER seems to be taken up by vulnerable types who don't quite understand what they are getting into. On the other hand it does give the older person access to money for their old age when bills are high and income low. Right now I am dealing with ER on a period cottage. I have a sale agreed at a figure which after all costs will clear the ER loan by perhaps £10k. Or so we thought. Its just had a survey that was far worse than expected, watch this space ....
How is it that nobody seems to understand, downsizers, particularly in the south and London are not moving because they don't have buyers because of Moron Osbourne`s Stamp Duty hikes of 2010-2016, people will not pay and are doing something else, the market is not functioning and wont until SDLT is radically reduced across the board. The current Chancellor is more interested in sabotaging Brexit than tackling a very important issue....This will undermine the whole market and must be put right.
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