Michael and his wife have been thinking for a while about moving from their home in Surrey, where they have lived for 25 years and raised their two sons. “We are rattling around a bit, but there was no obvious catalyst for moving — we hadn’t found anywhere to go and all our friends are here.” Yet last month, the 61-year-old retired businessman started speaking to estate agents to value his six-bedroom house, set in 2.5 acres of land. He was quoted a figure of around £2.75mn.
“All the talk of Labour looking at inheritance tax in the Budget has made us think: let’s just get on with it,” says Michael, who wanted to speak under a pseudonym. “Of course, we can’t sell before October 30, but we want to move somewhere smaller and pass money on to our sons while we can. The mood music definitely seems to be turning against older people owning big houses.”
UK estate agents have the highest number of homes on their books for a decade, with the number of properties on the market 12 per cent higher than it was in October last year, according to Rightmove.
As well as a rise in the number of landlords and owners of second homes selling (prompted by fears over capital gains tax rises, which now look to be unfounded), a number of other factors — high energy and mortgage costs, and even the plan to charge VAT on private school fees — are spurring more people into considering selling larger homes to move somewhere cheaper. With speculation mounting that the chancellor, Rachel Reeves, will announce sweeping changes to inheritance tax in the Budget next week, this begs the question: could Labour’s tax policies start pushing more people to downsize?
Since Labour won the election in July, estate agents say they have seen a notable increase in people enquiring about selling their large homes. “The change of government and potential changes in tax policies, especially around inheritance tax, have definitely been the trigger,” says Joanna Cocking, head of private office at Hamptons estate agency. “Whereas normally people say they are selling because the children have left home or the house is getting too big for them to manage, the conversation recently has been: ‘I don’t need to own a big asset like this and I’m concerned about Labour’s plans’.”
This early hint of a change in attitude follows a period that has seen falling numbers of people selling to move somewhere smaller. There were fewer than 100,000 downsizers in the year to March 2024, less than 10 per cent of the market, according to Savills estate agency, although property sales across the board were down compared to previous years; according to the Land Registry House Price Index, total sales in England and Wales fell by 22 per cent in 2023.
Among the deterrents to downsizing until now has been the difficulty of finding a buyer, given that those upsizing have been facing high mortgage rates. “One of the biggest challenges for downsizers recently has been not always getting the price they were expecting for their house,” says Jemma Scott, partner at The Buying Solution.
However, since mortgage interest rates have started coming down and house prices have drifted upwards, the appetite for downsizing appears to have picked up. Jackson-Stops estate agency has seen a 21 per cent rise in downsizer applicants in the year to October compared to the previous year, while Knight Frank says that, across the UK this year, it has seen almost 4 per cent of buyers citing downsizing as their reason for moving — this might not sound like much, but it is the highest level since the estate agency started recording the data a decade ago (at which time it stood at 1.8 per cent).
“As the housing market recovers, we would expect to see levels of downsizing rise, particularly if we see older homeowners face a greater exposure to inheritance tax,” says Lucian Cook, head of research at Savills.
Over-fifties who own their own homes now hold 78 per cent of all privately held housing wealth in the UK, while there are 1.3mn homeowners in England and Wales aged 65 and over living in a four-bedroom house, which is likely to be too big for their needs, according to research by Savills. If this generation moved, it would free up homes for families.
However, the barriers to downsizing can be significant. Savills says the over-sixties account for 44 per cent of all homeowners but only 17 per cent of home buyers, reflecting their reluctance to move. Most obviously, “stamp duty is a significant transactional cost that puts off many,” says Richard Rogerson, chief executive of RFR Property.
And stamp duty will rise next year. Reeves is expected to confirm in the Budget that the “nil-rate” threshold for paying stamp duty will fall from £250,000 to £125,000 in March — this means the bill for someone moving house will increase by up to £2,500. However, “given that £2,500 isn’t huge in the scheme of buying an expensive property, we don’t expect it to have much of an impact [in this market],” says Aneisha Beveridge, head of research at Hamptons. “It’s at the lower end that coming up with the extra cash can be tricky.”
So what makes moving worthwhile? To make the downsizing sums stack up after stamp duty and moving costs, a meaningful amount of equity needs to be released, either by moving to a lower value property or area. Savills says staying in the same area and downsizing from a four-bedroom home to a two-bedroom home in England and Wales could unlock an average of £300,000, but the gains are much greater in the more expensive south-east of England. For instance, in Elmbridge, Surrey, a downsizer could release almost £675,000 of equity (before any moving costs), but in Northumberland, the gain is less than £250,000.
But there’s a lack of suitable properties for downsizers. The Mayhew Review, published in 2022, found that only 7,000 homes are built for older people each year. It called for 50,000 units to be built annually in order to keep up with an over-65 population that is set to increase from 11.2mn to 17.2mn by 2040.
“Generally, new developments focus more on first-time buyers — and include incentives in the form of government schemes — or the family market,” says Lucy McIlroy, director of Winkworth estate agency’s Bath office. “Plus, retirement villages do not appeal to everyone.”
Jean Milson, 75, is selling the five-bedroom house in Canford Cliffs, Dorset, where she has lived for almost 50 years. “It’s a wrench because the house still has reminders of my husband and children and it’s in a beautiful spot,” says Milson, who was widowed a decade ago and has put her home on the market for £2.5mn. Milson had been thinking of downsizing for a while — it was fear of Labour’s inheritance tax policies that finally prompted her to sell.
Inheritance tax is levied on the value of property and other assets after death. On paper, it is paid by estates worth more than £325,000, although various rules and exemptions mean that many families can, in practice, pass on assets worth £1mn to their children tax-free.
Many homes exceed this. Property price inflation over recent years means that, across Britain, the number of homes worth at least £1mn has risen by 28 per cent since 2019. There are now an estimated 670,100 homes valued at £1mn or more, almost half of which are in London with 155,085 in the south-east of England, according to Savills.
The wealthiest families are often able to minimise their inheritance tax liabilities using trusts and complex estate planning. Just under 4 per cent of estates paid inheritance tax in 2020-21. However, speculation is now building that, in order to raise more money, the chancellor will target the seven-year gifting rule, which sees assets given to dependants become free of inheritance tax after seven years, so long as the person making the gift is still alive. Reeves is understood to be considering extending that period to 10 years. “This fear has really focused people’s minds to sell,” says Charlie Warner, partner in buying agency Heaton & Partners. “They want to be able to pass as much as possible on to the next generation.”
“Accelerating plans to downsize and gift some of the equity to descendants, to start the clock ticking as soon as possible, makes a lot of sense,” says Heather Powell, partner and head of property at the accountancy firm Blick Rothenberg. “Encouraging people to downsize to free up larger homes for families could even be seen as a positive move by the government,” she adds. “Mind you, I don’t think we will see any stamp duty relief for downsizers, which would really encourage them to move from homes that are too big for them.”
Among those who are choosing to downsize, there are signs that there is a broadening of profile. There has been an increase in younger people trading down the ladder, in many instances due to high mortgage costs and energy bills that have risen significantly in the past five years. Plus Labour’s plan to add 20 per cent VAT to school fees.
Hamptons estate agency says 40 per cent of all its downsizers are significantly trading down in value by moving to a home that’s less than half the price of their previous home, up from 30 per cent in 2019. More downsizers also still have a mortgage — this year, 55 per cent of downsizer moves were paid for in cash, down from 62 per cent five years ago. “All of this suggests that people are downsizing at a younger age because they still have a mortgage and are trying to reduce the payments to a more manageable level,” says David Fell, senior analyst at Hamptons.
Sarah and her husband are selling their five-bedroom home in Wadhurst, East Sussex, to move to a cheaper house in a village to the east and free up about £200,000 to put towards prep school fees for their two children. “The equity we release and the money we hope to save from no longer running a larger house, which we don’t feel we need, will go towards private school fees and a more comfortable lifestyle,” says Sarah, 39.
Fiona Penny, a property finder who works in Kent and East Sussex and is helping Sarah, is increasingly coming across people in their thirties and forties looking to downsize. “They often say that if things were different, they would be looking to buy a bigger home now but mortgage and energy costs are much higher than they were and something’s got to give if they keep the private schooling.”
However, some downsizers have managed to benefit from speculation over Labour’s tax changes, taking advantage of increasing numbers of second homes being put on the market in (likely mistaken) anticipation that the Budget would increase capital gains tax on them.
Nigel Bishop, founder of Recoco Property Search, recently helped a couple selling their four-bedroom London home of 35 years to buy in Falmouth, Cornwall. “They had a budget of £1mn but couldn’t find anything suitable until more second homes started coming on the market over the summer,” says Bishop, who was able to find them a two-bedroom flat overlooking the coastline.
With Labour’s proposed tax changes making more people think about moving, could these ripples start to build to higher levels of downsizing? “Policy might help tilt those people who were already contemplating downsizing into doing it,” says Neal Hudson, residential analyst and founder of BuiltPlace.
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However, Hudson adds, “Rising energy costs over the past few years will have made people think about why they are still rattling around in a large home. Expectations for house prices are also important. Over the last few decades homeowners have been rewarded handsomely for having a large house because they have benefited from significant house price growth. With house prices not expected to go up so much in the coming years, there’s less of an incentive to have your money in property — so more people could sell.”
A correction was made to Charlie Warner’s name
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