The latest data and analysis from the Intermediary Mortgage Lenders Association has revealed that almost 200,000 owner occupier housing transactions in England are now made by people over 55 who are able to use their huge equity reserves to find their perfect last home.
According to IMLA's report, this number has roughly doubled over the past decade.
IMLA notes that each year only around 2.5% of the eight million older homeowners in England move. But it predicts that, as the cohort of over-55s swell faster than all other generations over the coming decades, more people will seek to make one final housing transaction.
Cash is king for over-55s
According to estimates, property turnover has halved over the past 25 years and transactions continue to run at only about three-quarters the pace before the credit crisis. The picture would have been a lot bleaker had it not been for much higher activity from LTBs.
A majority of older homeowners - 63% - own their property outright, and they account for the bulk (84%) of all outright owners, holding a disproportionate share of housing equity - £1.8 trillion out of a total £2.6 trillion. Much of this equity is likely fuelling LTBs – in 2016/2017 LTBs in England accounted for nearly all of the moves (132,000) by outright owners (138,000), which were up 20% overall since 2006/2007 (115,000).
This strongly suggests that most LTB activity, and much of the growth in that activity, has to date been cash-financed, a phenomenon which has remained relatively hidden as many commentators focus only on mortgage transactions to assess the housing market.
LTBs lack suitable housing options
While LTBs currently account for a small percentage of the 55+ home-owning population, 47% of the homeowners over 55s, representing about four million households, plan to downsize at some stage. Another study suggests that there are 3.1 million last-time buyer households looking to downsize, and that this is set to grow to 3.7 million by 2026.
A wide array of factors serve to hold back LTB activity, but prominent among them are poor choice of suitable properties to buy, high transaction costs and affordability pressures.
IMLA’s report found that relatively few older homeowners actually need to move for health or other personal reasons, and for the vast majority any move is aspirational in nature and focused on the mainstream housing market. And, although there is some preference on the part of older people to move to a smaller and/or a cheaper home, there is a wide spectrum and not insubstantial numbers of older homeowners looking to move in the opposite direction.
Kate Davies, executive director of IMLA said: “Our increased life expectancy and growing number of people aged 55+ means that, far from being a niche sector, the number of LTBs in England has doubled within a decade. It’s clear that there is much appetite among older homeowners to move into a property better geared to their needs in later life – whether that be in terms of preferred location, character or size, but they face a number of headwinds in achieving that.
It is curious that house-builders appear to have been slow to recognize what could be a sizeable market for a variety of designs that combine practicality, low maintenance and energy efficiency. Retirement developments aimed at senior citizens have their place, but they’re not appropriate for everyone.
From a lending perspective, we have already seen considerable financial innovation around mortgages into retirement, lifetime mortgages and retirement interest-only products. But there is much more that could be done in fostering LTB schemes, whether these are bespoke equity loan deals, shared ownership schemes or entirely new arrangements.
It may also be time for the Government to address this LTB policy blind spot and begin to work more closely with the lending and house-building sectors to kick-start activity, much as it did for first-time buyers with its Help to Buy initiatives.
With demographic-led demand set to increase, it is hard to avoid the conclusion that we need to unblock new supply and develop new models of housing that cater for mainstream LTBs. We see huge opportunities for the housing and mortgage sectors to better serve the interests of older homeowners over the coming years, and in ways that promote their lifestyle and well-being, as well as the wider health of the housing market.”