Much has been made of the plight of people trying to trade up to a larger home amid significantly higher mortgage rates; however, our analysis also shows the extent of the squeeze on downsizers, or those trying to trade down the housing ladder.
This year we’ve seen 41% of all movers reduce their bedroom count, the highest level since our records began in 2016 and up 9% from 2022. These movers tend to prefer a slower market so that they can line up their onward purchase before selling their own home – an act that was simply not possible in the frenzied markets of 2021 and 2022.
However, their motivations go beyond that. In a year when the cost of living has surged, driven by higher energy bills, many have decided to cash in on their larger homes and move to somewhere cheaper in order to free up cash.
Higher rates have had an impact too. Many of those nearing the end of their mortgage term have made the decision to move in order to pay off their remaining balance and become mortgage free.
Our research segments the downsizer market into four distinct subgroups and tracks how their proportions have changed since 2017. Proportionately, the two groups that have grown most in recent years are those that have prioritised downsizing in value, which highlights the cost of living pressures and the impact of higher rates.
Downsizers trading down significantly in both the size of home and its value – that is, moving to a property that’s over 50% cheaper with at least two fewer bedrooms – now account for almost a quarter (24%) of the overall market, up from 20% in 2019, pre-pandemic, and only 16% in 2017.
Meanwhile, the share of those trading down significantly in value but not size – so moving to a home that’s over 50% cheaper but has less than two fewer bedrooms – has soared to 38%, from 30% in 2019 and 27% two years before that.
The increasing prevalence of these two groups means that, on the flipside, the proportions of downsizers who are trading down significantly in size but not value and those who are not trading down significantly in either size or value have been falling sharply.
Given the average age of downsizers and the goal to become mortgage free before retirement, cash dominates this market. However, it is the largest and fastest-growing group – those who are downsizing in value but not size – that are most likely to be still relying on a mortgage. This group is likely to be feeling the biggest squeeze from higher interest rates and downsizing will probably in part reflect a desire to reduce mortgage payments to a more manageable size.
Looking ahead it’s likely that 2023 could have been a peak year for downsizers. We expect the market to pick up a little more pace in 2024, meaning they may start to face competition from other buyers. Furthermore, falling mortgage rates should start to reduce some of the pressures on those who hold debt on their properties. One thing that’s unlikely to change though is the need for cash to help younger generations with their first home purchase. And they’ll increasingly be looking to older generations for this support.
