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Last-time buyers: are older people the answer to the housing crisis

Wednesday 10 May 2017

There has been a clear demographic change in the country, with a growing population and an increase in elderly homeowners.

A study by Legal & General and the Centre for Economic and Business Research found that almost a third of homeowners aged over 55 considered downsizing, however only seven per cent have actually made the move.

Whilst the Government has promised to focus on building more homes, many have called attention to building the right kind of houses. Ministers have vowed to make it 'easier' for elderly homeowners to move into sheltered housing, however, at present, there is a shortage of suitable properties for older buyers to move into, while those who can downsize are hit by huge tax bills.

So, what are the options for those unable to afford to downsize, reluctant to move house or fearful of the hassle and logistics involved in downsizing?

Incentives

In order to encourage pensioners living in large family homes to sell up, the Government have suggested that homeowners could be offered help with the costs of moving or even decorating their new property.

In 2014, a report by think-tank Demos proposed a 'Help to Move' scheme that would give downsizers a stamp duty exemption on properties worth up to £250,000. And similar schemes have already been implemented on a local level, with a council in Redbridge, North-East London, helping elderly residents by offering financial advice and covering the cost of moving and renovations.

A survey by Equifax revealed that 46 per cent of respondents would support a government incentive to encourage older homeowners to downsize their properties to free up space for younger buyers.

Lisa Hardstaff, credit information expert at Equifax, comments:

“This latest research has provided a strong insight into the current feelings of people at different stages of the home ownership ladder. It is perhaps not surprising that the younger people who responded to the survey have said that they would support an initiative which meant that more homes would be free for them.

“This insight is particularly interesting when looking at reports which show that a typical ‘last time buyer’ lives in a four-bed house but wants a two-bed property, and that almost a third of older homeowners have considered downsizing in the last five years but only 7 per cent actually did.”

In 2012, then housing minister Grant Shapps proposed councils should help pensioners move into 'more suitable accommodation' so their homes could be made available to young families and first-time buyers. However, over-50s group Saga warned that those in larger homes should not be blamed for the scarcity of affordable housing, or the economic conditions that make it difficult for younger people to get a mortgage.

Whitehall officials have stressed however that ministers have no intention of putting pressure on anyone to sell their home against their will.

Where do people move to?

Whilst the Government is promoting the construction of affordable homes for first time buyers, older homeowners are facing a different problem: the dichotomy of having ample equity in the home they own, but a deficit of suitable accommodation.

Some 200,000 new houses are needed every year, yet developers only have plans to build less than half that number. If more new homes were built with pensioners in mind, the controversy of bedroom blockers and underoccupation may be alleviated.

Gary Day, Executive Director at McCarthy & Stone – which builds 70 per cent of retirement housing in Britain – said that research from the University of Reading found that just one per cent of seniors lived in specially adapted housing.

“There is other research that shows that, given better housing choices in terms of specialist housing, older people in this country would most definitely consider this type of housing as an option.”

Proposed changes to inheritance tax

Condemned by critics as a "stealth death tax", the Government has proposed a sharp rise in probate fees - charges paid when someone dies and the executor of their estate distributes their assets - from £155 or £215, to a sliding scale based on the value of the estate.

At the lower end of the proposed changes, estates worth more than £50,000 and up to £300,000 would have attracted fees of £300 - rising to £20,000 for those valued at more than £2 million; this is a 9 per cent increase.

The controversial plans to raise probate costs have been shelved due to the General Election on 8 June 2017, with the issue now a matter for the new Government.

The Building Societies Association (BSA) has called on the Government, asking them to make last-time buyers a priority.

BSA Chief Executive, Robin Fieth said:

“What we need to do is focus more on the needs of last-time buyers, those people who want to downsize. There needs to be more focus on homes for last-time buyers. I’m quite critical of all governments, past and present, for focusing on first-time buyer units and not enough on last-time buyers.

“The Government must consider what incentives it wants to offer to encourage people to move out of the family home. We should not have tax policies that penalise people who want to trade down, which is what we have at the moment.