There’s no doubt about it, downsizing your home can help you save money while enjoying the equity release that you’ve freed up by moving home.
Whether you’re interested in selling your house to relocate closer to family, or you’re considering a complete lifestyle change.
Whether you’re selling your home to move into one of the modern retirement villages so you can make the most of life, knowing the pros and cons of downsizing your home couldn’t be more important, and there are many reasons to do so.
Please read our article where we look at the pros and disadvantages of moving to a smaller home to decide about moving to a new house which can help you decide on the pros and cons for you and your family.
In this article you’ll find:
- What does downsizing mean?
- Why should I downsize?
- The cons of downsizing
- The costs of downsizing
- Downsizing checklist
What does downsizing mean?
The term “downsizing” refers to situations where you move house from a larger home into a smaller home.
Often, downsizing options are considered by retirement planning and about to receive a state pension and who no longer need their family home as their children have moved out.
In such cases, older couples can have difficulty maintaining their current home or may find the hidden costs of running such a large and expensive property too high, so buying smaller.
Others who want to downsize are ready to change their lifestyle. Perhaps they’re looking for a simpler way of life, or want to relocate to be near friends and family elsewhere, or they want less space and something less expensive.
Why should I downsize my house?
Homebuyers who choose to downsize can experience a host of advantages:
Primarily, if you’ve lived in your property for some time, the chances are that it’s gone up in value.
You may have made your final mortgage payment, or be close to doing so when downsizing – it should be less expensive. This will all depend on property values in the area you live in.
The pros of downsizing your house
Being able to spend less will also affect your mortgage payments as they should be lower.
Selling an unwanted larger property will help you save a considerable sum of money in the long run.
If you sell your home and buy a cheaper, smaller property, you’ll release equity that you can then use for any purpose you desire.
Even better, you’ll have greater cash flow so you can purchase a new property without needing to obtain a mortgage.
This leaves you free to buy and sell with no chain and no third party delays, giving you plenty of future options due to your equity.
As an added benefit, if you downsize to a small property, there’ll be less upkeep.
- Your energy bills
- Council tax bill
- Insurance will be cheaper
- Pay less for most total costs
- Allow you to invest more into a pension for the future
With fewer square feet to clean and fewer household tasks, you’ll save yourself the time that you can then spend doing the things you enjoy most.
When you downsize later in life, you’ll also be able to find a property which better suits your needs.
Rather than having to carry out expensive home improvement projects to improve accessibility as you get older, you’ll be able to choose a property that’s all on one floor and which works best for you.
You can move to an area that offers more amenities or better accessibility than where you currently live.
If you’re living in a rural location, for example, moving closer to town will give you access to improved transport links, better healthcare and more convenient shopping.
If you are close to retirement or your children have now left your current home, this is another reason that people would consider downsizing as they don’t need all the room.
There are personal finance benefits to downsizing too. Your relatives can still benefit from an additional (RNRB) Inheritance Tax allowance even if you downsize. You can learn more about that by clicking here or ask your financial adviser.
The cons of downsizing to a smaller home
Although there are benefits to downsizing, there are several things that deter people from moving to a smaller home too:
Over time, you become attached to the property you’re living in. You get used to having a house of a particular space and size, and the idea of living in a smaller home can be challenging.
There are emotional costs to consider, as well as financial ones.
Many people who are reluctant to sell their homes care too much for the memories that they’ve made there with their family members and can’t face the possibility of giving it all up.
Over the years, you accumulate lots of possessions. If you downsize, you may struggle to fit everything into your new home.
The costs of moving would then have to include storage fees or having to hire a skip to get content out of the house.
Even if you like the idea of a smaller home, you may not want to move into a different area, and your estate agent may not have many (or indeed, any) small properties in your chosen location.
The price of a property in the area where you want to live may be so high that it wouldn’t be worth your while to move to a smaller property as there would be insufficient savings to make any benefit from your sale.
It’s important to get the balance correct and make the right choice to move to a smaller property and purchase smaller homes.
The stress of moving may be too much for you, particularly if you are elderly or in poor health.
When you add up the costs of buying a new home, for example, the conveyancing fees, stamp duty and the cost of hiring removals companies, it may turn out to not be worth your while to relocate, as the amount you’d save through your equity release would be too low.
What costs come with downsizing my home?
Although many people are keen to downsize to save money, it’s important to bear in mind that there are many costs involved with selling your home.
Therefore, you should consider these carefully and make sure you’ve accounted for them before you downsize. They include:
If you’re buying a home valued at over £125,000, you’ll need to pay Stamp Duty at 2% or 5% of your new property is worth over £250,000. Click here to find a stamp duty calculator.
Estate agency fees
On average, estate agents charge a commission of about 1.5% – 3%.
Conveyancing costs together with disbursements like surveys can come to over £2000.
Energy performance certificate fee
The EPC is now a legal requirement when selling your home.
Decluttering your existing home could end up costing you money. You may need to hire a skip or pay for your rubbish to be taken away for recycling.
Moving quotes vary but can be quite high depending on how many possessions you’re taking to your new home with you.
Pros and cons of downsizing – your checklist
If you’re trying to determine whether downsizing is right for you, this downsizing checklist will help you to consider all of the crucial elements carefully so that you can make a well-informed decision:
Consider why you want to downsize.
- Do you really need to move to a smaller property?
- Is it something you’re happy about?
- If you’re not happy, could there be a different solution?
If you’re definitely sure you want to downsize, think carefully about where you’d like to live.
- Are you keen to stay within your local area?
- Do you want to move to a different part of town or even a different part of the country?
Consider the kind of property that works best for you, and if you’re able to afford them.
- Do you need to make compromises, or can you pick from lots of properties?
- Do you need to pay your home loan off fully before you sell your home?
- Do you need to start throwing items away?
If so, you should begin donating and giving things away as you’ll have less space, selling unwanted items you wish to make money from, and separating any items you can’t bear to part with.
How could you prepare to sell your home? Download the Moovshack app to help you find an easier way to buy and sell.
Start looking at suitable properties and offer one that suits your needs for you and your family.
There is a lot to consider when downsizing and buying a smaller home. Learn more here at the Homeowners Alliance website.