MGM Advantage has looked at the potential winners and losers from people who have relied upon downsizing their property to fund their retirement.
The firm took current house prices and calculated the amount of equity released by downsizing from a detached property to a bungalow, allowing for associated moving costs and stamp duty.
By downsizing from a detached house to a bungalow in the Greater London area, one could potentially release around £238,000 of capital from the house move, once moving costs including stamp duty have been deducted. This sum, once grossed up, could generate a monthly income from an annuity of £1,342 at current annuity rates, but the person would be giving all your capital to the annuity provider to generate that guaranteed income for life.
Alternatively, if someone wanted to retain access to the capital, it could generate monthly interest of around £348 a month at current rates.
In comparison, Northern Ireland fares worst when looking at property downsizing. From a similar property move, one could generate around £24,000, providing a monthly income of around £139 from an annuity or £36 from an interest paying deposit account.
Comparing these numbers with the UK average, moving from a detached property to a bungalow could generate a sum of £84,000, providing an income of £475 from an annuity (once grossed up at 20% tax relief) or £123 a month from a monthly interest paying deposit account.
Andrew Tully of MGM Advantage, said: “Using your own home to provide the income for your retirement is an option for people who have no other savings. But, you should never have all of your eggs in one basket, as these figures show significant regional variations in who could benefit from downsizing.
“People who are able to save should consider other forms of saving, whether that be in pensions or ISAs, rather than banking on your own home to fund your retirement.”
