Europe News

Silver splitters: Divorcing retirees and house prices

Key Points

The number of "silver-splitters" – couples who divorce around retirement age – is on the rise, and is set to affect the broader U.K. property market.

There was a 77 percent increase in divorces where the husband is over the age of 50 between 1982 and 2012. Before going their separate ways, these couples have already benefited from a succession of housing market booms -- particularly if they own property in London and the South East. And, after decades of marriage, they are also likely to have mortgages paid or close to being paid off.

In 92 percent of the U.K. housing market, a divorcing older couple with a four-bedroom home could then each buy a two-bedroom home from the proceeds of sale of the matrimonial home, according to calculations by Savills, the estate agent.

"More affluent divorcees are likely to use it as an opportunity to give the kids some cash," Lucian Cook, director of residential research at Savills, told CNBC.

"On the other hand, if silver splitters both need all their cash to buy their own properties, it could prevent them from passing on to their kids."

This should help supply in the property market by freeing up some houses, but is unlikely to help stimulate the supply needed at the lower end of the markets, according to Cook.

Bubble alert? UK house prices rise to 6-year record
London housing market is 'overpriced': CEO

Divorce rates can be linked to the housing market: the number of divorces typically tail off at the start of a property market downturn as couples put off splitting until they can extract more value from their house.

More than half of personal wealth in the U.K. is held in the housing market, according to official data from the Office of National Statistics, and this unprecedented accumulation of housing wealth in the has already had profound social effects on the next generation.

In 2001, 58 per cent of 25-34 year olds in England and Wales owned their own home – but that fell to 40 per cent in the 2011 census. The delay in getting on the housing ladder may be one of the reasons young British people are marrying later. In 2011, the average age of a man getting married for the first time was 32.2, while in 1971, with a more affordable property market, it was 24.6.

Thomas Piketty
Don't fear my book, fear reality: Piketty

The trend has not been missed by policymakers. Boris Johnson, the Mayor of London, has suggested that older people who sell up their family home should not have to pay inheritance tax on their profits, as a way to encourage them to sell up, downsize, pass down wealth to the next generation and free up housing supply.

This may also represent another threat to social mobility in the U.K. The much-debated work of Thomas Piketty, the French economist whose book "Capital" was published in English this year, identifies the accumulation of housing capital as one of the possible sources of rising inequality, and Piketty has suggested higher taxes on higher-valued properties as a means of combating inequality.

- By CNBC's Catherine Boyle