Homeowners in London can expect windfalls of hundreds of thousands of pounds by downsizing to a smaller property such as a semi-detached house or bungalow, research has found.

Londoners freed up an average of £289,927 when moving from a detached home to a bungalow in 2014, and £237,614 trading down to a semi-detached house, perhaps because their children have flown the nest and they are looking towards their retirement, according to analysis by Lloyds Bank.

As the housing market recovery continues, Lloyds found that downsizing is the key driver of property moves for existing home owners, with more than half (52 per cent) of home owners who are planning to sell their home in the next three years saying they would like to move to a smaller house.

Of those who expect to have some spare cash left over when they downsize, 43 pc plan to reinvest the money in a new property, 26 pc plan to put the money into other financial products and 13 pc said they will invest in their pension.

A further 13 pc said they would use the money to give financial help to family members.

The main reason people said they wanted to downsize was to find a property that was more suitable for their circumstances.

After this, the reasons were largely financial, with 40 pc of people saying they want to cut their household bills, 28 pc wanting to release equity from their property and 25 pc looking to boost their retirement incomes.

Nationally the average amount people made by downsizing from a detached to a semi-detached property was £121,686.

Andy Hulme, mortgages director at Lloyds Bank, said: “Downsizing is clearly still a major part of the housing market, with over half of potential home movers considering a smaller property.

“The volume of downsizers is therefore helping to keep the market moving, freeing up larger properties for those making their way up the ladder.”

The figures were calculated using the house price database of Lloyds’ sister bank, Halifax. A survey of around 1,000 home owners was also carried out.

Moving costs, such as stamp duty, legal fees and hiring a removal firm, were not included in the calculations, so these are extra expenses which people would also have to bear in mind when weighing up the potential cost benefits of downsizing.

Separate figures from the Equity Release Council also showed a record amount of cash was taken out of homes by pensioners who chose not to downsize through equity release last year.

This supports findings that the bulk of home owners’ wealth is in their primary residence.

The findings come as many older people are looking forward to enjoying greater freedom over their pension pots from this April.

New rules will enable people aged 55 and over with a defined contribution (DC) pension pot to take their money how they wish, without being herded towards buying a retirement income called an annuity. People will be able to dip into their money as they wish, subject to their marginal rate of tax in that year.