The Higher Cost of Downsizing Outside London

A report from Savills has shown that retirees living outside London could face higher costs and lower benefits if they choose to downsize their homes. This insight throws a spotlight on the widening economic divide between the capital and the rest of the UK, with significant implications for those planning their retirement.

The London Advantage

In the affluent enclaves of London and the South East, downsizing from a four-bedroom to a two-bedroom house can significantly boost retirement incomes. Londoners in the 65 to 69 age group can expect to add an impressive £2,523 to their monthly retirement pot, tallying up to £30,276 annually. This financial maneuvering in the capital stands in sharp contrast to the rest of the country, particularly for those residing in the Midlands and the North, where the benefits of downsizing are considerably less pronounced.

A Stark Contrast

The report uncovers a startling disparity: residents in the North East, who opt for downsizing, will find themselves receiving roughly a third of what their London counterparts get — a mere £826 per month, or £9,912 a year. This stark financial difference is not just a matter of numbers but a reflection of a deeper North-South economic divide that extends into retirement planning.

The Best Spots to Unlock Equity in London

For those lucky enough to own property in London’s prime locations, the rewards of downsizing are even more lucrative. Westminster leads the pack, where downsizing can unlock a staggering £3.3 million in total, translating to £12,420 per month. Kensington and Chelsea, with a total potential equity release of £2.9 million (£10,483 per month), and Camden (£1.5 million in total or £5,688 per month), follow closely behind.

The Impact of Longevity

An intriguing aspect of the Savills report is the correlation it draws between house prices and life expectancy. Higher property values in London and the South East coincide with some of the longest life expectancies in the country, highlighting an added advantage for downsizers in these areas. In contrast, those in the North East, even if they downsize at 84, would still find themselves £706 short each month compared to their younger London counterparts.

A Deeper Divide

Lucian Cook, Savills’ head of residential research, pointed out the stark North-South divide, emphasising that the option to use housing equity for retirement is predominantly a privilege enjoyed by those in more affluent areas. This disparity suggests that many in the Midlands and the North might delay or altogether skip downsizing due to the limited financial benefits.

The National Picture

With 1.29 million people over 65 living in four-bedroom houses, England faces a challenge with 68.8% of its homes being “under-occupied.” Proposals, such as removing stamp duty in the spring budget, have been suggested by academics to encourage older homeowners to sell, potentially revitalising the property market.

The Cost of Moving

Stamp duty remains a significant hurdle for downsizers, with fees that can add up to thousands of pounds, further complicating the decision for many. The national average scenario paints a grim picture, where selling a larger home for £464,870 and buying a smaller one for £348,735 leaves families with a hefty £4,937 stamp duty bill.

In Conclusion

The findings from Savills underscore a complex reality facing retirees across the UK: the decision to downsize is not just about seeking comfort in smaller living spaces but dealing with a labyrinth of financial implications that can drastically alter one’s retirement. With the Treasury reporting a record surplus, the debate over potential tax cuts and incentives for downsizers is likely to heat up, casting a spotlight on the need for policies that address the widening economic gap between London and the rest of the UK.