Downsizing is something many homeowners consider, particularly later in life when children have flown the nest. It can be a fast-track way to become mortgage-free, raise money to pay off any personal debt or boost retirement income.
Research from retirement housebuilder McCarthy and Stone revealed that 11 million people plan to downsize their homes by 2037 but while there are many advantages to doing so, there are also some financial and practical implications to consider.
Financial considerations
Downsizing to a smaller property can have many financial benefits, including significantly reduced household bills and upkeep costs, but these savings may not be as big as initially thought.
Type of property
Even though many first-time buyers are now bypassing flats and smaller two-bedroom properties in favour of something bigger, many won’t have an option to stretch their budget that far. This means downsizers could potentially be pitting themselves against property-owning novices in the property search.
Equally, smaller properties may not be that much cheaper. Flats, for example, may have a lower asking price but there are other costs to think about, such as ground rent, leaseholder charges including management and maintenance fees, plus sometimes a fee for buying a parking space.
Perhaps you’re thinking about a bungalow instead? Well, with these types of properties in such high demand and very few being built, they come with the price tags to match.
Moving costs
If one of the reasons for downsizing is to raise cash, then the cost of moving must be factored in as it can seriously dent the capital you are left with.
According to My Big Move, the cost of moving house is around £10,000 when you factor in the usual stamp duty land tax (the current holiday is due to end on 31st March 2021), estate agent fees for selling your current property, solicitor and conveyancing fees.
There are also removal costs and even possibly penalties for repaying your mortgage early.
Practical considerations
Aside from the sentimental value when selling a home you may have brought your family up in for decades, you have to think rationally about the other consequences of becoming a downsizer.
– Less space
It may be stating the obvious but, of course, you are likely to have less space when you downsize. It’s not just about the number of bedrooms and bathrooms or sacrificing a big garden. Generally, in a smaller property, everything will be smaller. No space for walk-in or fitted wardrobes, no downstairs cloakroom/toilet, no larder or utility room, no garage or driveway.
When looking for a smaller property, think about which facilities you have in your current home that you really value and couldn’t live without. Also think about where visiting friends and family members will stay if you’re not going to have a spare bedroom.
Then there’s your furniture and personal possessions that may not fit in your downsized home. Prepare to sell or gift large and unwanted items, and identify those must-haves that you really want to take with you when measuring up smaller properties.
– Growing old
When moving home later in life, you need to have a plan for your long-term care whether you want to or not. Firstly, be mindful that any capital freed up from the sale of your bigger home could end up being used for your care in later years, so you should find out how you’ll be assessed financially.
But more than that, you have to think about the practicalities around growing old. How far away will you be from family and friends who could care for you? Are you going to be near to amenities and transport links should you not be able to drive? Is another house with no ground floor bathroom or a second-floor flat with a temperamental lift a good idea?
A risky alternative?
If you’re not convinced that downsizing is for you, then you could look into equity release – where you release some cash from your property but continue living there and paying it back when you die.
A staggering £3.4 billion of property wealth was released in these kinds of schemes in 2019 but they do come with an element of risk and we recommend you take trusted, unbiased advice before taking this action.
Whatever decision you make, do not make it lightly and do your research beforehand. Feel free to talk to us for more financial and practical downsizing advice.