Everything You Need To Know About Downsizing
Everything You Need To Know About Downsizing

Everything You Need To Know About Downsizing

Whether your children have flown the nest or you need to release some extra cash, the idea of a more manageable home can sound appealing. But choosing to leave a larger property in favour of something smaller can be a daunting and emotional experience. To find out more about the implications, we asked a range of financial and property experts to answer our questions.

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What are the primary reasons to consider downsizing?

“There are four main reasons couples or individuals might choose to downsize:

Release equity: A common complaint after you retire is that you become asset rich but cash poor. By selling your house and buying a smaller and less expensive property, you can free up equity locked in your home and use the proceeds to fund retirement, help children or grandchildren to buy their own home, or pay off the shortfall on a mortgage. Research by the pension firm Prudential has revealed that the average downsizer could achieve savings of around £112,000 by selling their home and receive an annual income of almost £14,000 if the money released from the sale was used to buy an annuity (coupled with a state pension).

Reduce monthly outgoings: With low interest rates badly affecting returns on savings, you may decide to downsize simply to reduce the cost of bills. Current estimates suggest that you could make annual savings of over £500 on energy bills alone by relocating from a four-bedroom to two-bedroom house, while relative savings on tax, insurance, maintenance and even mortgage payments could also be substantial (depending on circumstances).

Reduce your maintenance burden: Smaller homes obviously require less in the way of general maintenance. So, while you might be fine with the current level of cleaning and general maintenance, it’s wise to look to the future and consider how you would cope in future years.

Move to a better location: If you’re living in rural isolation and depend heavily on driving to get to local amenities, you might want to consider moving somewhere with good transport links and a vibrant high street, and in close proximity to local art centres, leisure facilities and a doctor’s surgery. By having everything you need on your doorstep, you’ll ensure you can reduce the risk of isolation if getting around becomes more difficult.” – the team at the UK Homeowner’s Alliance 

Can you explain equity release in a little more detail?

“Equity release is often used as an alternative to downsizing, but it can also be used to facilitate the move to a smaller property. If you own a larger property with a mortgage that’s over 50% of the value of the property, you won’t be able to release equity through a lifetime mortgage. However, you could buy a smaller property using the equity from the sale of the larger property, making up any shortfall in the purchase price by taking out a lifetime mortgage on the new property. For example, if you’re selling a property for £700,000 with a £400,000 mortgage, you could downsize to a property worth £500,000 using the £300,000 equity from the sale of the larger property and raising the remaining £200,000 of the purchase price using equity release instead of a mortgage.” – Jerry Matthew, equity release specialist at KIS Finance

Where should people look to invest the equity realised from a successful house sale?

“A lot of couples like to use it for holidays and other once-in-a-lifetime experiences. However, if you’re looking to reinvest the money, then you could look into purchasing an investment property to create additional income. If there’s enough, you could purchase another property outright to rent out or, alternatively, you could use it as a deposit on the new property and finance the rest with a buy-to-let mortgage.” – Jerry

How else can downsizing impact your financial situation?

“If you have owned your current home for some time before you consider downsizing, you may find that it has significantly increased in value since it was first purchased and you could make a profit from selling it. There will also be lower overall costs, such as reduced mortgage payments and home insurance, as well as lower utility bills, taxes and maintenance. Furthermore, the money that you may potentially make from selling your original home can be used to supplement your pension or any other income that you rely on.” – Tabitha Cumming, a property expert from The Lease Extension Company 

Equity release is often used as an ALTERNATIVE TO DOWNSIZING, but it can also be used to FACILITATE THE MOVE to a SMALLER PROPERTY.

What are some of the major costs to budget for?

“High street estate agent fees vary, according to the agreed contract, with an average commission of around 1.5-2%. In contrast, online agents charge a flat fee of on average £700, regardless of the value of the property. The cost of conveyancing, together with any homebuyer surveys which need to be carried out, will vary between £2,000 and £2,600. Moving costs will fluctuate according to how much is being moved and whether you invest in someone to pack for you. A safe estimate would probably be around £1,000.” – the UK Homeowner’s Alliance 

“You need to keep the usual financial considerations that come with buying property in mind, such as stamp duty or other legal fees, as well as capital gains tax in certain circumstances. If you are debating moving into a development such as a retirement village, these can come with extra costs such as maintenance fees, service charges, event fees and ground rent.” – Tabitha

What other factors should people consider when downsizing?

“If you are considering downsizing, you should evaluate whether alternative options may work better for you, such as renting, moving into a retirement village, accessible homes or, if you are a tenant of your local council, they may have schemes for downsizing. You should also consider if there are any essential features that your new property will need. For example, if you are moving due to health or accessibility issues, a bungalow or other single-storey home could be the best option for you.” – Tabitha

What are some popular options for downsizing and what are the various advantages?

“There are four viable options for downsizing:

  1. Retirement villages – these are purpose-built for older people who would still like to live an independent lifestyle surrounded by others of a similar age. Some of these will offer on-site leisure facilities and have different types of accommodation to choose from. You will not be responsible for undertaking any repairs or maintenance yourself, and some sites will offer help or personal care if you ever need it in the future. If you are going to be living alone, you may feel safer in the community of a retirement village and will have opportunities to socialise with other residents.
  2. Accessible homes – these are properties that will meet access criteria for those who need it, such as step-free access to your home from the street and ground-level toilet or bathroom facilities. 
  3. Bungalows – these are usually single-storey properties that are much smaller than typical homes. 
  4. Living in an annex – this is a separate living space built on the land of another property (usually a relative's), usually in the garden. The advantages of living in an annex are that you will be close to relatives if you ever need help but will still have your own space and privacy.” – Tabitha

What are some strategies for finding the ideal smaller property that meets your needs and preferences?

“When trying to find an ideal smaller property that will meet your needs, you should try to envision your future in this home. For example, bungalows are extremely popular and demand outweighs supply, so you may have to settle for a smaller house instead. If this is the case, you should consider if there will be room to fit a stairlift, potential to move bedrooms downstairs and if you will be able to keep up with the maintenance of outdoor areas. Check the property's distance to things such as supermarkets and nearby transport links, especially if you have mobility issues. Before viewing properties, try to measure your current furniture to check this against the size of the rooms in a smaller home so that you can be sure all your belongings will fit. You may also want to evaluate if the property needs any repairs, as this may not be factored into the original budget that you had in mind.” – Tabitha

If you are CONSIDERING DOWNSIZING your property, it may be beneficial to DISCUSS YOUR PLANS with your FAMILY OR LOVED ONES FIRST.

What are some potential obstacles people may face when downsizing?

  • Mortgage costs – if your current home is not fully paid off or the profits you will receive from selling it will not cover the price of your new home, you may need to take out another mortgage.
  • Moving expenses – you may face extra costs such as hiring movers, or if you need to buy furniture or appliances for your new home.
  • Space – you may find that your new home has a lack of space compared to your old home and feels cramped, especially if you regularly have guests or family visiting.
  • Lifestyle adjustments – you may need to change your spending habits if you buy a lot of furniture or clothes, as you will no longer have as much space to put them. 
  • Less storage – if you have a lot of items that will need storing, your new home may not have the capacity of your current home. Similarly, if you are living in a home that has an attic, your downsized home may not have this feature.
  • Other adjustments –- you'll have to settle into a new neighbourhood, which may be hard if you have good relationships with your neighbours or are currently close to amenities. You may also have to consider the distance that your new home will be from your family, especially if you rely on them for help or often visit each other.

How can people effectively declutter before downsizing?

“You should ideally begin before you start packing or looking at properties. This can help to save time when it comes to moving and will make your current home look more spacious, adding to the appeal for prospective buyers if you are selling. Here are my tips:

  1. Try to be ruthless when sorting. It can be hard to part with items if they have sentimental feelings attached to them, or it may be difficult to get rid of clothes and larger items. Check the measurements of your new home so that you can see how much less space you will have, so that you can get rid of any furniture items that will not fit and anything that you may have excess amounts of (e.g. clothes or crockery). 
  2. Use stickers to colour code. Try to organise one room at a time, pulling out everything in that room so that it can be sorted. You can then use coloured stickers to label items that you are going to keep, sell, donate and throw away. This will also help if you have movers or family and friends helping, as they will know what and what not to pack.
  3. Break items down into categories. If you look at all of the similar items you have at the same time, this can make it easier to decide what needs to go. For example, get out all of the crockery that you own to see if there are any duplicates or items that have not been used for a long time.
  4. Don't forget to organise paperwork. If you have not organised your home office or desk recently, you may find that there is a build-up of paperwork. Try to keep any important paperwork, such as car or insurance documents, together in a folder so that they can easily be found in the future.
  5. If you struggle with being too sentimental about items, try to ask yourself questions such as, 'Do I have something similar to this already?' or 'Do I have a photo of this item that I could take with me instead?'. You can also attempt to limit yourself to one container or box for these items and, once it is full, you can go through everything to try and cut it down again.” – Tabitha

How can people involve their family and loved ones in the decision to downsize?

“If you are considering downsizing your property, it may be beneficial to discuss your plans with your family or loved ones first. If they help out with your current house, ask if they would still be willing to do so in your new home. You may also need their support during the moving process, especially if you are finding it hard due to the memories attached to your old home. Family members may be willing to take things from you to use in their own homes if there are any items that you are struggling to get rid of, as well as help out with organising and decluttering.” – Tabitha

What kind of lifestyle adjustments might people need to make after downsizing?

“If you frequently buy things for your home or regularly purchase clothes, you may need to cut back on this depending on how much storage you have access to in a downsized property. Also, if you are used to having your own space, you may have to adjust to living much closer to others after downsizing. If anyone else still lives with you, they may also have to get used to sharing bedrooms.” – Tabitha

Finally, are there any situations or circumstances in which one shouldn't downsize?

 “If house prices are likely to substantially increase in the near future, it’s probably better to delay downsizing as a 10% increase in property prices on a larger house will be worth more in cash terms than the same percentage increase on a smaller property. Also, if there aren’t any properties that you like within your area, or a short supply of the type of property you’re looking for, you may not want to move away from your family, friends, work and social life. This is something important to consider, and generally why equity release is a good alternative to downsizing if you need additional funds but don’t want to move.” – Jerry

For more information, visit TheLeaseExtensionCompany.comKisBridgingLoans.co.ukHOA.org.uk

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