The Downsizing Dilemma – Why Stamp Duty Relief Could Free Up Family Homes

The UK is facing a major housing crisis. With demand far outpacing supply, buying a home has become extremely difficult and expensive for young families. At the same time, millions of older homeowners are stuck in homes that are now far too big for their needs. Giving these “last-time buyers” a tax break to downsize could help free up much-needed family housing stock.

The High Costs of Downsizing

For many older homeowners, downsizing seems like an obvious choice. Their children have moved out, their spouse may have passed away, and they no longer need multiple bedrooms or a large garden. However, the costs associated with moving to a smaller home make downsizing prohibitively expensive for most.

The main costs for downsizers include:

– **Stamp duty** – This tax must be paid when purchasing a new home over a certain price threshold. For older homeowners who have seen their property values skyrocket, the stamp duty bill can easily reach five figures. This is a major deterrent.

Legal fees – Conveyancing and solicitor fees often cost thousands of pounds. When combined with stamp duty, the total upfront costs make downsizing seem pointless.

Removal costs – Physically moving decades’ worth of belongings is disruptive, stressful, and expensive. Many homeowners simply don’t want the hassle.

Lack of suitable housing – Finding an age-appropriate home in a desirable area is extremely difficult. Smaller bungalows and retirement properties are in short supply.

For homeowners like 72-year-old Martin Mason, these barriers make downsizing seem impossible. He lives alone in a 5-bedroom house in Horsham, but desperately wants to move. The costs would be astronomical, however, and he sees no benefit to selling his home just to pay exorbitant fees and taxes.

Freeing Up Family Homes

Mr. Mason’s dilemma is shared by millions of older Brits. Over 90% of over-65 households are considered “under-occupied”, meaning they have at least two spare bedrooms. Freeing up these large family homes would significantly ease the UK’s housing shortage.

The scale of under-occupied housing among older homeowners is staggering:

– There are 2 million over-65 homeowners with at least 3 spare bedrooms

– 25% of over-65 households have at least 4 spare bedrooms

– Over-65 households occupy nearly a third of all 4-5 bedroom houses

Releasing even a fraction of these properties onto the market would make a major dent in demand among young families. Developers cannot build new housing stock nearly fast enough to meet current need. Helping downsizers should therefore be part of any plan to fix Britain’s housing crisis.

A Tax Break for Last-Time Buyers

To incentivize older homeowners to move, policymakers have proposed targeted stamp duty relief. Similar to how first-time buyers can purchase homes stamp-duty-free up to £300,000, a “last-time buyer” exemption could apply to those purchasing a smaller home.

Damian Green, former First Secretary of State, promoted the idea at a recent Conservative Party conference. In his view, the logic is straightforward – if downsizers aren’t punished with massive tax bills, they will be more likely to move. This would free up larger properties which young families desperately need.

The policy has gained support from housing advocacy groups, who see it as a common-sense solution. Stamp duty reform could potentially unlock hundreds of thousands of under-occupied homes over time. If purchasers had to be over 60 and prove they were downsizing, it would prevent abuse while helping older Brits transition into more suitable homes.

The Need for More Options

However, stamp duty relief may not be enough on its own. Many empty nesters do not want to move into retirement flats or small apartments. They require bungalows, cottages, and smaller houses to actually downsize into. And attractive options in desirable areas are still in short supply.

Deborah Slade, who lives in a 4-bedroom home in Cheshire, wants to downsize but finds the lack of choices frustrating. As she says, “We don’t want to go into something like a two-bedroom retirement apartment – we are still active and still at work. We still want something with room for guests and a garden, but there is nothing on the market for us.”

The housing shortage cuts both ways – older homeowners need appealing downsizing options just as much as young families need starter homes. As Neil Webster discovered when trying to sell his Preston home, the market for larger, aging houses is stagnant. Bungalows are “miserable” and new builds cater more to first-time buyers.

For downsizing to work, the homes being vacated must sell quickly. But with limited demand from younger buyers, that is often not the case. Last-time buyers need reassurance they can sell easily and then purchase a suitable new home.

More Than Just Stamp Duty

While stamp duty exemption would help, other policy reforms are likely needed:

Help with moving costs – Providing logistical and financial assistance for the actual moving process could motivate more downsizers. Removal services, help packing, and perhaps even a government cash bonus for downsizing could make the transition less daunting.

Incentives for home builders – To spur construction of more downsizer-friendly housing in desirable areas, developers and councils need encouragement. Relaxed planning restrictions, tax breaks, discounts on materials, or other incentives could help drive supply.

Council tax adjustments – Local tax policies could be tweaked to make downsizing more appealing and being under-occupied less so. Council tax rates could shift to favour smaller households, for example.

Purchase guarantees – To reassure last-time buyers they can easily sell their current home, government guarantees to purchase properties direct may help. This backup option reduces risk.

Priority access to housing – Ensuring downsizers get first access to new developments tailored for over 55s supports the downsizing journey. Reservation schemes and quotas could assist.

Unlocking the Property Chain

The chronic shortage of affordable starter homes in many areas makes downsizing an ethical imperative for some older homeowners. Why cling to mostly empty properties when young families are squeezed into tiny flats and house shares?

By removing barriers to downsizing through smart policy reforms, under-occupied larger homes can gradually be returned to the market. This benefits both last-time buyers looking to rightsize into modern, low-maintenance homes, and the millions of prospective first-time buyers languishing on waiting lists and fighting for scarce affordable properties.

With the right incentives, millions of larger family homes could be freed up over the next decade. Though not a magic bullet, supporting downsizers to move is one strategy to help alleviate the UK’s housing supply crisis. Last-time buyers eager to rightsize deserve consideration.