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Financial Watchdog Tells The Elderly To Downsize To Tackle Housing Shortage

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I think the "problem" is that "paid for" houses don't provide an income for the members of the Intermediary Mortgage Lenders Association.


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I think it is a significant part of the problem (rather than just 'population too high').

In the days of yore, people very often moved house at about retirement age - this was done for various reasons, but included ease of maintenance, front-running decline (realising that you will need a lower maintenance garden, that you might want to live in a bungalow) before it hit. And they did realise some of the asset value that they held in property.

In those days, stamp duty was often low or zero (as they were moving into a smaller home, and thresholds were more in tune with prices), and frankly prices were more accessible, so it wasn't that big a deal.

But now - everything they have is in property - often the value of the property is more than they've ever earned - and possibly more than they earned in adjusted terms post taxes. What's more, houses are clearly an appreciating asset class and holding the expensive asset is a 'smart move'. Finally, in the days of yore, pensions were a bit marginal, so you needed the money. Pensioners are now the single 'wealthiest' class in the UK* (well, they might not have health, but their income after tax, mortgage, childcare costs and education is relatively massive).

So, you end up with me, living in two bedroom house with the four of us (two children), earning a relatively large salary but not being able to afford to move up in the neighbourhood, while next door is a 70 year old widow living alone in a 5 bedroom house with massive garden (that I help her mow!).

The funny thing is, you could change it tomorrow. The taxation regime pushes this type of behaviour. But they won't change it because the older generations vote more than the younger ones.

* I know that there are poor pensioners - and there are poor at all levels of society. But on average they are quite well off, certainly compared with the past.

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Only last week the Council of Mortgage Lenders said pensioners are blocking the property ladder because there was little incentive for them to downsize after their children leave home. CML chairman Moray McDonald said that, last year, just one per cent of the UK’s 5million homeowners over-65 moved house.

The straight-faced call to reduce/cut/exempt stamp-duty for elderly downsizers, really winds me up.

They're the ones sat on £Trillions in equity.

Lynda.B must surely have the okay to come out with this positioning. Jan 2014: She will remain within the mortgage sector but will now lead the team responsible for identifying, analysing and monitoring the key risks affecting the mortgage market and working on the FCA’s strategy for the sector.

Article below was in Sunday Times http://www.thesunday...icle1419856.ece and behind the paywall, but is also at his own website.

Quote

Sunday, June 08, 2014

Bank grapples with a strange kind of housing boom

Posted by David Smith at 09:00 AM

[...]Why is it happening? Older people looking to downsize appear reluctant to do so, perhaps because the returns they can get on the savings they unlock are so abysmal, and cannot compare with the strongly rising price of the property they own. Instead of being a source of properties for sale, they have become the so-called “bed blockers” of the housing market.

http://www.economics...log/002028.html

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The straight-faced call to reduce/cut/exempt stamp-duty for elderly downsizers, really winds me up.

They're the ones sat on £Trillions in equity.

Lynda.B must surely have the okay to come out with this positioning. Jan 2014: She will remain within the mortgage sector but will now lead the team responsible for identifying, analysing and monitoring the key risks affecting the mortgage market and working on the FCA’s strategy for the sector.

The people making the policies are old...whatcha expect.

They will downsize in 10 years....

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I think it is a significant part of the problem (rather than just 'population too high').

In the days of yore, people very often moved house at about retirement age - this was done for various reasons, but included ease of maintenance, front-running decline (realising that you will need a lower maintenance garden, that you might want to live in a bungalow) before it hit. And they did realise some of the asset value that they held in property.

In those days, stamp duty was often low or zero (as they were moving into a smaller home, and thresholds were more in tune with prices), and frankly prices were more accessible, so it wasn't that big a deal.

But now - everything they have is in property - often the value of the property is more than they've ever earned - and possibly more than they earned in adjusted terms post taxes. What's more, houses are clearly an appreciating asset class and holding the expensive asset is a 'smart move'. Finally, in the days of yore, pensions were a bit marginal, so you needed the money. Pensioners are now the single 'wealthiest' class in the UK* (well, they might not have health, but their income after tax, mortgage, childcare costs and education is relatively massive).

So, you end up with me, living in two bedroom house with the four of us (two children), earning a relatively large salary but not being able to afford to move up in the neighbourhood, while next door is a 70 year old widow living alone in a 5 bedroom house with massive garden (that I help her mow!).

The funny thing is, you could change it tomorrow. The taxation regime pushes this type of behaviour. But they won't change it because the older generations vote more than the younger ones.

* I know that there are poor pensioners - and there are poor at all levels of society. But on average they are quite well off, certainly compared with the past.

Excellent and well-considered post.

As my mum (in her 70s) likes to say when we visit her large detached 4-bed. 'Why don't you move to a bigger house'?

Grrrr

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The people making the policies are old...whatcha expect.

They will downsize in 10 years....

Not so sure about that. The guy handling the BTLers responses (and perhaps worked on the policy technicals) for the Treasury is late 20s. Markets move at the margin.

One theory I have from the early 90s crash, was it was allowed to play out hard in London / SE, for it was time to rout the older owners with the higher end valued property, and allow younger people (including those in power) to upsize.

Edited by Venger

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Have they told them to halve their f**king prices ?

They may well consider this if the homes they downsize to were also reduced in price.

In my area a two bedroom bungalow can cost more than a four bedroom detached house, I imagine this is why the mid 60's widow living next door remains in her large house alone.

It would be unreasonable to expect an elderly person to pay for the privilege of moving into a smaller home, would you do so?

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The problem for many old people is that the only 'downsize' available is a purpose built pensioner flat with horrendous annual maintenance charges.

Most don't want this as they are active pensioners.

The real problem is the lack of small bungalows.

But as one of the responses to the article points out, builders won't build them

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It always amazes me that people can look at this obvious failure to allocate houses efficiently and still claim that there is a free market for housing.

There is a cost to having pensioners occupying family houses in economically viable locations.

That cost is paid by people living in cramped conditions and commuters travelling miles to work.

If pensioners paid their own costs, they would be rewarded by downsizing - or not, their choice.

The entire system is based upon the ability of the government to force one group to pay the price for another groups lifestyle, allowing pensioners to externalise their costs whilst holding onto the profits.

It's their own children and grandchildren they are hurting.

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Planners mostly won't allow bungalows to be built. They have density guidelines. Throw in the astronomical price of development land, again a byproduct of our planning system , and bungalows aren't happening.

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My parents live in a nice 4 bedroom detached house, it is a short walk to their friends, their church, the village shop and the pub.

They've spent 35 years in the house making it how they want it and it is large enough for us to come and stay.

Even on the basic state pension each they'd be able to afford to live there, their bills are slightly higher than for a smaller house but not by much, everything is metered nowadays.

So why would they want to move to a smaller house?

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The problem for many old people is that the only 'downsize' available is a purpose built pensioner flat with horrendous annual maintenance charges.

Most don't want this as they are active pensioners.

The real problem is the lack of small bungalows.

But as one of the responses to the article points out, builders won't build them

Active pensioners? The roads are rammed with the bastards this morning! Popping up everywhere like horrible white mushrooms. Must be the weather.

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The problem for many old people is that the only 'downsize' available is a purpose built pensioner flat with horrendous annual maintenance charges.

Most don't want this as they are active pensioners.

The real problem is the lack of small bungalows.

But as one of the responses to the article points out, builders won't build them

I don't know why anyone who is still fit and not yet particularly old would especially want a bungalow. My folks downsized into one in their mid/late sixties, decided they didn't like the area after 3 years, and moved back to a house. They then realised that their general fitness had suffered quite a bit simply from the lack of stairs.

I do realise that she was lucky, but my mother was still perfectly well able to manage stairs when she moved into a care home at 89.

Many retirement flats seemed to be aimed at single downsizers, and single downsizers who have got rid of most of their possessions at that - certainly not couples who still want room for family to stay, and service charges can be pretty horrendous. Added to that, I have often heard that they can be notoriously difficult to sell later, either for probate or when care home fees are needed. And even if the place is empty for a year or more, those hefty service charges still have to be paid.

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My parents live in a nice 4 bedroom detached house, it is a short walk to their friends, their church, the village shop and the pub.

They've spent 35 years in the house making it how they want it and it is large enough for us to come and stay.

Even on the basic state pension each they'd be able to afford to live there, their bills are slightly higher than for a smaller house but not by much, everything is metered nowadays.

So why would they want to move to a smaller house?

Precisely. I'm not sure why people think that just because you are old, you are somehow supposed to feel the need to live in a smaller house.

People like space. Nobody willingly chooses to have less space, unless they have a medical problem or there is a lack of money.

Edited by Errol

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They may well consider this if the homes they downsize to were also reduced in price.

In my area a two bedroom bungalow can cost more than a four bedroom detached house, I imagine this is why the mid 60's widow living next door remains in her large house alone.

It would be unreasonable to expect an elderly person to pay for the privilege of moving into a smaller home, would you do so?

Sigh.. let them stay then, but don't have them complaining about equity disappearing in a HPC. I'm not talking lower end of market £150K homes to £100K homes, or this bungalow costing more than large house narrow market in your specific area. And it's not true all retirement apartments are expensive / have high running fees. If we need to build anything, it's more retirement villages. It's a growth build sector in parts of USA, and silently underway in UK.

I'm talking about the real market... £500K+ houses. Yet even there we have HPI Forever heads where they believe it's not financially worth it for older owners hogging family homes.

There's older MSEers considering downsizing.. seen a few threads. Asset rich/cash poor. A market tilt and we may see more of them make a rush for it. Then we'll have no end of older home-owners complaining, and wishing they'd downsized sooner.

What annoys many people is rachman [the hpc poster]- like many in London - are literally lottery winners. (Being given £1-1.5 million pounds fir nothing can most definitely be classed as a lottery win)

And are not even cashing it in !!

Argee was one of my fav posters for the chronic math entitlement of anti-downsizing. Possibly he was inline for property-inheritance? I'm sure it's the same thinking most older owners have.

It is expensive to downsize. Moving down incurs all the moving costs associated with moving up. Selling a £1m property to move into a £600K property will cost over £40K when all fees and taxes are considered. In effect you lose 10% of the potential gain. I don't believe people are refusing to downsize, it's just that they lack any incentive to do so.

Aside from reducing IHT liability, it doesn't make much sense to downsize.

Moving from a £1million property to a £600K property costs £24K Stamp duty, £12K Estate agent fees (assuming 1% +VAT) and probably another £4K in various other costs. So that is £40K off the £400K "profit".

Lo-fi, on 08 May 2014 - 07:27 AM, said:
Turning down the possibility of £400k equity gains for the sake of £40k fees is either extremely poor maths or somewhat disingenuous (i.e. the fees aren't really the main issue). There are no doubt many legitimate reasons not to move, but that's not one of them.

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‘It also massively blocks the passing of family capital to younger generations, which we know would enable more people to buy sooner. So it bears on younger borrowers massively.’

So really what they are saying is they need old people to sell up to give their kids money to buy because without this help they can't buy and the market stops dead ....

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The big disincentive to downsizing for the average person must be the situation of moving from an appreciating house you like to a smaller strange house with the freed up cash sum earning next to nothing and now with a risk of bail in - or risking that sum in the casino. The risk of depreciation of the freed up money (or just plain bail in theft) being the main disincentive although not the only one.

Edited by billybong

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