Homeowners could receive a windfall by selling their house and moving to a bungalow, new research shows – but almost half are choosing not to do so.
The difference in value between a detached house and a bungalow is £110,000 on average, according to a report from Lloyds. But this more than doubles in some parts of the country.
That aside, 45% of over-55s are planning to stay put in their larger family homes after their children move out, citing strong community ties and financial comfort.
Here, we look at where downsizing is most profitable and how you can weigh up whether to make the move.
- If you’re looking to move home and remortgage, our experts can help you find the best deal. Call Which? Mortgage Advisers on 0800 2942 849.
Where are downsizing windfalls highest?
Owners in the South East have the most to gain from shifting to a smaller home, the Lloyds research shows, with the average house owner standing to earn on average £273,466.
The Lloyds research is based on the average price of a detached house and the average price of a bungalow, on the assumption that the house is owned without a mortgage.
By contrast, London owners have the least incentive, with a price difference of just £54,780 – though it’s worth noting that there are very few bungalows available in the Greater London area, meaning demand may be much higher.
Downsizers in Scotland could pocket on average £89,099, while in Wales owners could make a tidy £118,767.
You can see how the average windfall compares around the UK on our map below.
Owners choosing not to move
Despite the potential gains, many ’empty-nesters’ – where the children have left home – are choosing to stay put in their detached houses, Lloyds found.
In a survey, 45% of those whose children had moved out said they were not considering moving. Of those, 40% said they had strong ties to their local area that made them want to stay, while 30% said they were financially comfortable and had no need to downsize.
Many also prioritised future generations, with 28% saying they wanted the extra space to look after grandchildren.
- Find out more: finding the best places to live
A Bungalow’s lack of stairs makes the single-storey home appealing to many people later in life.
But the number of bungalows on the market is relatively small, making up just around 10% of British owner-occupied housing stock, according to the English Housing Survey. These homes are also unevenly distributed, with a tiny percentage in major cities.
At the same time, very few new bungalows are being built, with this housing type making up just 2% of completions in the UK in 2017-18, the National House-Building Council reports – amounting to just 2,579 new homes.
Of course, not all empty-nesters dream of retiring to a bungalow. Blocks of flats are now increasingly built with lifts, offering the same easy access as a one-storey house.
But if the idea of living in a flat is not for you, be aware that bungalows can be hard to find. And, with the ageing population pushing up demand, they may become even scarcer in future.
If your future health is likely to prevent you living in a two-storey home or walk-up flat, it’s worth starting to plan ahead.
Should you downsize your home?
The decision to downsize is not purely financial – you’ll need to weigh up your desired lifestyle against your possible future needs. And from a financial perspective, there are a number of things to consider.
Moving to a smaller home can be economical in terms of bills and repair costs, especially if it means you’re less likely to need help later in life for day-to-day maintenance.
Depending on the equity you hold in your home, you can also free up cash towards other costs, such as financing retirement or helping out future generations. If house prices in your area are stagnating over the long-term, you may be better off taking the equity and investing it within a pension fund.
But even if you own your home outright, you may face unexpected costs when moving. If your new home is worth more than £125,000, you’ll need to pay 2% stamp duty on the amount between £125,000 and £250,00, and 5% on the value between £250,001 and £925,000.
You’ll also need to pay estate agent and conveyancing fees, and survey costs on your new home, plus the actual moving costs.
If you still have a mortgage on your property, any proceeds from the sale will be diminished by repaying the loan. In some cases, your profits may not be sufficient to buy a new property outright, so you may instead need to port your mortgage to the new property.
It’s also worth considering whether your detached home will grow in value at a faster rate than a smaller dwelling. If you already own in an area where prices are rising fast, staying within your larger home for a few more years may boost your profits – although you may also pay a little more for your new bungalow.
- Find out more: selling a house
Alternatives to downsizing
If you’d like to stay in your home, but also access the equity you’ve built up, you have a number of options.
If you still have a mortgage on your property, you could consider remortgaging to free up cash.
For example, if you still owe £50,000, you could take out a new mortgage for £70,000 and take the £20,000 as a lump sum.
If your home has increased in value over time, the loan-to-value ratio on your new loan should still be smaller or the same as your original loan. Just make sure to take into account how much you’ll pay under the new arrangement, including the new rate of interest and any fees or charges.
Be aware that some banks may be unwilling to offer new mortgage deals to older customers, or those who are retired. So if this is the option you want to pursue, you may need to act sooner rather than later.
- Call Which? Mortgage Advisers for impartial advice on your remortgaging options on 0800 2942 849
A lifetime mortgage only becomes repayable when your home is sold after you die or go into long-term care.
In many cases, you can choose to let the interest payments ‘roll-up’ – meaning they are added to the loan amount, so that you pay nothing each month.
But keep in mind that the debt can increase quickly, as the interest payments attract interest as well. Equity in your home can be quickly eroded, so that your children’s inheritance may be reduced or entirely eaten up.
These types of products are required to have a ‘no negative equity clause’, so that your estate can’t be liable for more than the property’s value, even if this is less than the outstanding debt. Check the terms and conditions carefully to make sure the provider is compliant.
- Find out more: lifetime mortgages
Interest-free retirement mortgage
As with lifetime mortgages, this type of deal allows you to take out a new loan against your property which is not payable until your death or move into care.
But in this case, you’ll pay off the interest on the loan each month instead of rolling it up.
Your heirs will still receive a smaller portion of your estate, as the loan is repaid on your death. But the costs will be fixed at the loan amount rather than spiraling upwards, as with a lifetime mortgage.
The FCA has recently made a rule change that will make it easier for lenders to offer these products.
Under a home reversion scheme, you sell all or part of your home to a provider, in exchange for the right to live in the property.
Generally, you’ll receive much less than full market value, to reflect the fact that you’ll continue to live there. So you may be better off selling up and moving home instead.
Most plans have a minimum age of at least 60 or 65, with the percentage of the property you’re required to sell increasing the older you are. Again, this will leave your estate much smaller than it might otherwise have been.
With any of these schemes, it’s important to seek advice before jumping in.
Your best option is likely to be remortgaging but being approved may be tricky. The experts at Which? Mortgage Advisers can help you understand whether you’re eligible and what your options are. Request a free callback below.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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