One fifth of Americans say they will downsize when they retire. This is mainly due to being too attached. 

Research by Hargreaves Lansdown found that those nearing retirement are less likely to plan to downsize. 

Just 17 percent of people aged 45-54 said they would choose a smaller residence, but this dropped further to 14% among those 55-64 years old.

Those nearing retirement age can downsize to a smaller property to access cash tied up in their home - but a survey had found that only 20 per cent want to do so

A survey found only 20% of those nearing retirement want to downsize their property in order to have more cash available.

Even though house prices have risen rapidly over the last year, larger houses are benefitting more, so downsizers may be able to afford a smaller home.

However, people who are moving to larger properties in the country or at the edges of cities may feel the differences diminished by the higher costs closer to the centre.

The survey of 2000 people found that 20% would consider downsizing, while 38% stated they wouldn’t, while 42% said otherwise.

In retirement, many people choose to buy lower-priced properties and then use the proceeds from selling their home to supplement their pension income or help their loved ones financially.

The best people to downsize are those who have either paid off all or most of their mortgage. They can then use the proceeds to purchase a new home without a mortgage.

However, more people are now struggling to pay off their home before they retire – and it can also be difficult to remortgage once you have reached a certain age. 

Hargreaves Lansdown research also shows that financial concerns can influence individuals’ decisions to stay put.

Around one in ten  didn’t believe they would make enough money from downsizing, while almost a quarter said it would be too expensive.

Helen Morrissey from Hargreaves Lansdown, senior pensions analyst, said that despite the fantasies, the financial realities may be less positive than the dreams. Moving costs can take a lot out of their profits and leave them with much less than they had hoped.

Almost a quarter of respondents said the costs of downsizing would be too expensive

Nearly a quarter said that the cost of downsizing was too costly.

The most common reason respondents said they didn’t want a smaller home was because of their attachment to it, as 28% claimed.

Morrissey stated, “When your race for space is won it’s hard to lose.”

“Massive home price growth is making the possibility of downsizing in retirement attractive, but it’s clear that not everyone is convinced.

“The pandemic reminds people how precious it is to have space to roam around their home. The prospect of having to leave that at a moment when they might be spending more at home is not attractive.

Londoners are the most likely to plan to downsize, with 39% planning to do it in retirement. This compares to the 16 percent of South-East residents.

The capital is a great place to sell your home, especially if you have lived in it for a while.

People with outstanding mortgages on London properties may have trouble servicing a large loan from their retirement income. 

Are you looking for alternatives to downsizing?

Many retirees are forced to downsize in retirement due to rising living costs and decreasing benefits from their workplace pension plans.

You can also work longer hours or cut down on your outgoings to fund retirement.

A lifetime mortgage is another option to unlock equity in your home.

A homeowner can take out an equity release loan to help pay a portion of the home’s value.

The loan can be repaid by the sale or transfer of the property if the owners die.

Downsizing can release extra funds for retirement but often homeowners find that high prices for suitable properties can mean they don't get as much as they think

While downsizing may be a great way to release additional funds for retirement, homeowners often find that the high price of suitable properties means they aren’t getting as much.

You should approach equity release with caution. Equity releases can be costly and make it harder to get your house back if needed.

The inheritance that an older person wishes to leave their family is also reduced.

Morrissey says, “This comes with a real price, not only because there are fees involved but also because the interest on the loan can roll up and the amount that you owe could easily double before it is paid off.

If you decide to downsize, equity release may be an option. This is if your debts have drained so much of your equity that it’s impossible for you to afford smaller homes.

A Retirement Interest-only Mortgage (Rio) is another option.

This homeowner refinances their property with a main lender. The homeowner does not have to repay the remaining balance, instead they just need to pay the interest.

You can save money by reducing your monthly outgoings. The loan is only due to the owner if he or she dies.

Contrary to equity release however, the borrower needs to be able to show that they have enough income to make it past a bank’s affordability assessment.

Mainstream mortgages can be continued if the borrower meets the minimum income requirements and is not over the lender’s age limit.

You could cut your monthly payments or free up equity by refinancing to a loan with a greater value.

Morrissey said that while everyone’s answer may differ, it is important to think through all aspects before you decide on downsizing.

The basics of equity release and the best places to find advice

This is Money has joined with Age Partnership. Age Partnership is a group of independent advisors that specialize in helping you find retirement mortgages or equity release options that work for your needs. 

>> Find about equity release and get advice   

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