With a cost of living crisis weighing on the pockets of all, many have turned to downsizing as a way of reducing monthly bills and expenses, as well as freeing up cash. This has been amplified by rising interest rates on equity release, which had become a popular option for older generations to free up cash without selling their home. But it turns out that the 2022 housing market has been prime for those looking to cash in and move to smaller homes.
Over the past five years, the value of larger family homes has risen much faster than flats. The Covid-induced race for space put a premium on larger homes with the extra room for an office or a growing family. Consequently, downsizers looking to move against the flow, now free up more money than they previously did.
The gap between the price of a large family home (a five-bed semi or a detached home) and a downsizer option (a bungalow, over 55’s home, or a ground floor flat) has widened to the largest on record. Back in 2017 the average downsizer home cost 57.9% less than a large family home. Since then, the gap has grown to 63.5%. This has allowed downsizers to free up more cash than ever before, with the gap equating to a £554,910 average saving in 2022.
Downsizers typically have their fair share of choice too. This year, there were 5.3 suitable downsizer homes coming onto the market than those they were moving from, up from 4.7 in 2017. This partly reflects the lack of availability of larger homes suitable for growing families.
While the average price gap between the homes is 63.5% across Great Britain, there are some areas that are more favourable for downsizers. The 10 Local Authorities with the largest gap all see at least an 80% saving, enabling movers to free up substantial equity.
With a price tag well beyond the half-a-million average for Great Britain, Kensington & Chelsea sits at the top of this list with the average large family home costing £7.1m. Here, an average downsizer would save almost £6m (£5,964,760) or 84.1% by trading down. This comes despite rather minimal price growth in the area and the average gap shrinking from 84.5% five years ago.
Second on the list is East Ayrshire, just south of Glasgow in Scotland. While the gap between a family home and a downsizer one is much the same in percentage terms (83.6% this year), the pound gap is a fraction of first place at £384,850. Here however, the average downsizer home costs £66,170, meaning on average a downsizer in the area could buy their new home almost six times over.
Backed by the strong price growth of larger homes, those looking to sell and move to a smaller dwelling have found themselves in a strong position. However, this gap may have widened as far as it ever will. A higher interest rate environment is likely to mean that fewer first and second time buyer’s budgets will stretch as far as a house, pushing up demand for smaller homes. These groups typically have the least equity and as a result are most exposed to rate rises, making trading up to a house more difficult than it used to be.
That being said, downsizers are likely to become increasingly important players in the market over the next couple of years. Delayed demand from Covid, higher energy costs and punishingly expensive equity release rates mean the appetite from older Baby Boomers to move to smaller homes is high. While paying a mortgage is a distant memory for virtually every downsizer, upsizing would-be buyers of their home will still be hit by rising rates, meaning that unfortunately, no-one is immune from today’s economic realities.
