Don't bank on downsizing your home for your retirement dreams, says Standard Life

MrChips

Standard Life has conducted analysis of the UK housing and retirement markets and is predicting a bleak future for many people hoping to use their current property to provide their pension. The survey found downsizing from the average home in the UK will provide only 16% of retirement income.

I've not had a chance to read this properly yet so am posting for information and for people to reply with their thoughts.

Key details:

• The average home in the UK will provide only 16% of people’s retirement income through downsizing their main property.
• Downsizing and achieving a surplus £150,000 of equity could provide an income of around £130 a week.
• Moving from a bungalow to a flat in the UK would release £25,000 of equity which could produce a weekly income of £22.
• The largest equity gains to be found by downsizing from a detached property to a flat in London and the South East, potentially creating 64% and 71% of your retirement income.
• Most people want to retire on an income of 2/3rds of their working earnings. This should provide a similar standard of living in retirement, allowing for the fact most people will have paid off their mortgage and will not have costs associated with travelling to work. By comparing the income likely to be generated from the equity and retirement income aspirations, significant shortfalls have been identified.
• The average detached home in the UK is valued at £343,058. If the owner downsized from the detached property to a bungalow in the same region (average UK value £118,260), and allowing for moving costs of £2,248, the equity released could generate a retirement income of £100 a week, or put another way, 30% of your retirement income.
• How much someone can generate by downsizing their property, very much depends on the property type and how far someone wants to go. For example, if your main residence is a detached house, you could generate about 35% of your retirement income by moving to a semi-detached property. However, if you currently live in a semi-detached house and move to a flat, it may only generate around 2% of your retirement income.
• Standard Life has made certain assumptions to arrive at these figures: importantly only looking at downsizing homes within the same geographical regions in the UK; and using the FSA annuity tables to turn the money released through downsizing into a notional retirement income.
• There are significant regional differences in how much income downsizing your home might generate. The South East and London can potentially provide the best opportunity to supplement your retirement income while East Anglia and Scotland could potentially provide the least income.
• 
  
  Detached to bungalow
  Detached to semi-detached
  Detached to flat
  Semi-detached to flat
  Terraced to flat
  Bungalow to flat
  UK Average
  30.4%
  34.5%
  37.1%
  2.1%
  -2.2%
  6.1%
  North
  23.4%
  27.4%
  40%
  12.1%
  4.8%
  16.1%
  Yorks & Humb
  29.8%
  35.8%
  46.3%
  10%
  1.2%
  16%
  North West
  30.3%
  36.1%
  48%
  11.4%
  0.3%
  17.1%
  E.Midlands
  21.6%
  28.9%
  37.1%
  7.8%
  2.1%
  14.9%
  W.Midlands
  25.5%
  35.6%
  46.9%
  10.8%
  4.6%
  20.8%
  E.Anglia
  21.3%
  28.1%
  39.5%
  10.9%
  6.7%
  17.7%
  South West
  22.9%
  34.9%
  50%
  14.4%
  7.9%
  24.9%
  South East
  40.7%
  47.6%
  71.2%
  21.6%
  9.3%
  28.3%
  Gt. London
  50%
  42.3%
  63.9%
  19.1%
  11.5%
  11.6%
  Wales
  19.4%
  27.3%
  38.7%
  10.8%
  0.9%
  18.7%
  Scotland
  18.2%
  25.3%
  34.6%
  8.7%
  3.8%
  15.8%
  N.Ireland
  19.1%
  30.1%
  47.2%
  16.4%
  2.8%
  25.7%

MrChips

Sorry, originally that was a nice compact table of figures but the formatting has gone off a bit...

EdInvestor

MrChips wrote: »

Standard Life has conducted analysis of the UK housing and retirement markets and is predicting a bleak future for many people hoping to use their current property to provide their pension. The survey found downsizing from the average home in the UK will provide only 16% of retirement income.

This is very unrealistic.The problem seems to be that they are using annuity rates of some kind.

Redoing the figures in a way recognisable to most people

• The average detached home in the UK is valued at £343,058. If the owner downsized from the detached property to a bungalow in the same region (average UK value £118,260), and allowing for moving costs of £2,248, the equity released could generate a retirement income of £100 a week, or put another way, 30% of your retirement income.

If you did this, net of moving costs you would generate surplus capital of 222,550.Invested at a 5% return, this would generate annual income of 11,127, or 213 pounds a week, more than double their estimated figure.

moonrakerz

MrChips wrote: »

• Downsizing and achieving a surplus £150,000 of equity could provide an income of around £130 a week.
• The average detached home in the UK is valued at £343,058. If the owner downsized from the detached property to a bungalow in the same region (average UK value £118,260), and allowing for moving costs of £2,248, the equity released could generate a retirement income of £100 a week, or put another way, 30% of your retirement income.

I really have doubts about some of those figures !

£150,000 in Icesave @6.7% gives £10050 pa Gross or £154 pw after tax. If you hunt around you can get a better rate than that.

£343,000 minus £118000 and £2248 in Icesave again gives £230 pw after tax.

Apart from which the average detached house price is not £343,000, and a bungalow in the same area would not be £118,000. These figures do not make sense.
The first figure is high and the second is low !

http://www.nationwide.co.uk/hpi/historical.htm

http://www.communities.gov.uk/news/corporate/hpiaugust2007

dunstonh

Relying on the ability to downsize or equity release is never a sound option. It is a fall back option available in case you need it but you shouldnt plan for it as it may not end up being an option that is viable when you get there.

Retired_I.F.A.

There is nothing wrong with Standards lifes figures. Mr Chips has got it wrong in assuming the average bungalow price is 118.000 whereas downsizing from the average detatched house to the average bungalow would produce that amount.

The group said people could release the most money by downsizing from a detached property to a flat in the same region.
But with the average detached home in the UK worth £343,058, such a move would unlock only £144,000 worth of equity - which would provide an income of just £122 a week once it had been converted into an annuity.

Doing a smaller downsize, such as from a detached home to a bungalow, would free up only £118,000 which would bring in an income of £100 a week.

Source: http://news.sky.com/skynews/article/0,,30400-1307647,00.html

exil

How about downsizing from a big house in London to a small house in Wales or Cornwall?

This whole thing is an attempt by pension sales people to rain on the parade of people using property as their retirement fund.

dunstonh

How about downsizing from a big house in London to a small house in Wales or Cornwall?

Not sure Cornwall would see you a lot left over. Wales probably would.

What if you are already in Wales? What downsizing options are you likely to have then?

Retired_I.F.A.

dunstonh wrote: »

What if you are already in Wales? What downsizing options are you likely to have then?

Loads, you can always go from a static to a tourer?

meester

surely this is obvious? If you bought your 5-bed detached in Weybridge years ago and are mortgage-free, then you will be able to downsize and live like a king, and if you bought your 3-bed ex-council house in Nottingham you won't.

Fairly simple, is your house worth a lot more than average, or not.

MrChips

Retired_I.F.A. wrote: »

There is nothing wrong with Standards lifes figures. Mr Chips has got it wrong in assuming the average bungalow price is 118.000 whereas downsizing from the average detatched house to the average bungalow would produce that amount.

None of the text is mine, other than the second paragraph saying I haven't read it yet! It was all cut and pasted from an email I got with the headline bullet points and the table.

In answer to Moonrakerz points, you can get such guaranteed returns from bank accounts now, but you can't rely on it in the future. The only interest rates you can get over terms of 30 odd years are from government and corporate bonds which over such long terms aren't currently offering 6.7% - long term gilts are more like 4.5% (and thus these are what annuities are priced on). If you want inflation protection you need to look at index linked gilts which currently only offer real yields of about 0.9%.