False economy: Eight in 10 downsizers better off staying put

Homeowners who unlock housing wealth using equity release end up thousands of pounds better off on average than those who downsize, a study has revealed.

Despite a widespread assumption that downsizing is cheaper, 81% of equity release borrowers would have been financially worse off had they moved to a cheaper property.

Retirees using lifetime mortgages end up growing their net wealth by an average of 0.2% more a year than if they downsized, the research shows.

This is the first time that a study of real lifetime mortgage transactions has measured the relative impact of equity release versus downsizing on customers’ finances. Over 230 historic equity release transactions from 2013, 2014 and 2015.

Homeowners were 0.24%1 better off each year on average by turning to equity release over downsizing, the analysis shows.

When looking at only those people whose financial position improved, the average annual gain rose to 0.36%.

The net worth of these borrowers was an average 1.85% higher to date than if they had downsized.

This was equivalent to £1,694 a year on average, rising to £2,420 a year among only those homeowners who were better off not downsizing.

They analysed the house price performance achieved since completion in each customer’s local authority.

It then created a downsizing scenario for every borrower that left them with the same amount of money they had released using their lifetime mortgage.

Reasonable assumptions were made about the cost of moving including legal fees, moving costs, Stamp Duty and estate agent fees.

The local performance of the housing market was then applied to the downsized property valuation, allowing the ultimate financial position of all customers to be compared across both scenarios — downsizing and equity release.

House price growth averaged out at only 0.41% annually, suggesting that even seemingly modest gains in property prices can tip the balance firmly in favour of staying put and unlocking housing wealth using equity release.

Within the research, the largest projected gain in net wealth compared to downsizing was £262,328 over 8.5 years — although this customer owns a very expensive property now worth nearly £5m.

The largest projected lag in net wealth was £172,184 but, again, this customer owns a similarly expensive property.

Total equity release lending in the UK reached £4.8bn in 2021, according to the Equity Release Council (ERC).