Moving house in Retirement – What to consider

Rising Prices

Once people enter retirement they often look to move property, whether that’s to downsize, move to a bigger more suitable house, or even look to investing in property as an income during retirement.

Here’s what to consider in terms of the UK market.

Methodology –  Calculating patterns in house prices.

In calculating the effect of these factors (compounding and house price inflation) we have assumed, as per the Halifax study, that the average homeowner will move six times and sell five times.

We’ve further assumed that they buy their first property aged 25 and then move, on average, once every nine years — in other words, they will sell their fifth property (and buy their sixth) 45 years after they bought their first at the age of 70 (a slightly more conservative estimate than the Halifax figure).

Halifax house price update: which UK price index should you be following?

Invest In Property

As the above information shows, house prices are likely to increase over the next 15 years, therefore we believe that now is the perfect time to invest, whether that be through property development or becoming a landlord.

Property development

Property development is a great way to invest in property. There are many ways you can achieve a successful property development profit.

Our best advice would be to get into contact with property development finance companies, who are clear about how much you can borrow to finance your build.

We ould particularly advise this option if you are a first-time developer, as banks are unlikely to give you a loan.

Rate of house price inflation

Based on house price figures supplied by the Land Registry — and even after assuming 30% drop in prices due to the current slump (so far it’s about 20%) — we worked out that house prices are doubling about once every 15 years as follows:

  • during the last slump the market bottomed out in July 1996 when the average house in England and Wales sold for £59,650;
  • prices during the current property cycle peaked in January 2008 at £184,674;
    that’s an increase of 295.3%;
  • factoring in a 30% drop from peak to trough prices will bottom out at £129,272;
  • this leaves us with an increase of 216.7% ((129,272/59,650) x 100 = 216.7);
  • based on what happened during the previous slump we’ve assumed that we will see house prices dropping over a period of three years (2008 – 2010) after which we will see two years of price stagnation (2011 – 2012) before prices begin to recover (2013);
  • this gives us a property cycle of around 16.5 years;
  • 216.7 growth over 16.5 years is equivalent to annual growth of 4.8% or a doubling of house prices around every 15 years.

We’ve used a doubling of house prices every 15 years as the basis for our calculations even though historically house price inflation has been much faster than this.

Doubling every 9 years on average between 1930 and 2007 (CLG Housing Statistics 2008) to avoid overstating the effects of house price inflation.


Rate of non-house price inflation (CPI)

We then looked at the rate of non-house price inflation over the same time period. We chose CPI because it does not include mortgage costs.

Figures from the Office for National Statistics showed us that CPI rose from a base of 88.2 in Quarter 2 of 1996 to 109.8 in March 2009.

This gives us an average CPI of 1.7% a year. This is the equivalent of a doubling of prices every 42 years.

Again, in order not to overstate the effect of house price inflation (relative to CPI) we assumed that CPI will double much faster: every 30 years (a rate of 2.34% per annum) rather than every 42. More.

The effect of house price inflation in real terms

Using these conservative estimates we find that over the next 45 years the rate of house price inflation will be 2.826 x more than that of CPI inflation, calculated as shown below:

  • with house prices doubling every 15 years we get three doubles in 45 years;
  • starting with a base of 100 this would give us 100 x 2 x 2 x 2 = 800;
  • with CPI doubling every 30 years we get a little under one and a half doubles in 45 years;
  • starting with a base of 100 this would give us 100 x 2 x 1.415 = 283;
    800/283 = 2.826

So, in real terms the extra £61,640 of value from rolling over the additional returns from selling privately (based on a starting value of £200,000) is actually worth: £61,640 x 2.826 = £174,248 in today’s money — equivalent to 87% of the value of a £200,000 home.

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