Frank O'Donnell

The housing market is experiencing big changes which could significantly effect the property market. The ‘baby boomers’ of the forties and fifties are now reaching age 65 and coming up to retirement.   Many of them intend to use their homes to subsidise retirement by selling up and downsizing.

New research from insurer LV= shows that 1.3 million over 50s plan to cash in their property to help fund retirement.   This could mean over a million properties coming to the market during the next few years at a time when mortgage funds are still restricted and first time buyers, who underpin the market, are still struggling to save enough for a deposit – even if they can get a big enough mortgage. 

To worsen matters the equity release market is also shrinking, which has previously been seen as an alternative to downsizing so this may not be much of an option in future. Equity release allows homeowners to remain in their home and withdraw capital to subsidise pension income.  The interest charged on the borrowing is rolled up and paid off when the house is sold.

And the potential problem could be greater than LV= assumes.  Figures from the Office of National Statistics show that there are 21.29 million over 50 year olds and some 6.174 million of them have not yet retired.  Of those still to retire 79% own their own homes.  If they all decide to downsize over the next few years some 4.877 million extra homes could come onto the market. 

The recession has played havoc with retirement plans for the baby boomer generation.  They are suffering a decline in the value of both their pension savings and their property at a time when household costs have risen sharply. 

Half the population has no pension savings at all and if they are homeowners, selling up and downsizing is their only hope of a comfortable retirement.

An increasing number may have to rely on the wealth stored up in their homes to survive in retirement. It is unlikely that they will all want to sell the family home in order to retire – but with pension savings much reduced by the collapse in share prices last year and the market still remains very uncertain.

As LV=’s research reveals, one in six, or 16%, of over 50s who plan to cash in their property say that their traditional pension savings are no longer enough to retire on and that their home is their best option. A further 10% admit that their home will be their only source of retirement income other than the State pension.  

If LV=’s research proves to be accurate there could be a flood of properties coming to the market in the next five years or so.  It is not yet clear how this extra supply can be absorbed and how this will affect house prices but certainly not likely to push prices up.