Downsizing house – everything you need to know
According to retirement property company McCarthy & Stone, around half of homeowners aged 65-plus are interested in downsizing their house. This useful guide will look at the benefits of property downsizing and give you the opportunity to consider whether it might be the right option for you.
What is downsizing?
Downsizing is the term used when you sell your existing property and purchase a smaller home. You may downsize because your current property is larger than you need, or you may want to move to a smaller, less expensive property to release some of the money tied up in your home.
What are the benefits of downsizing to a smaller house?
- Less time spent maintaining your property
- Reduced monthly outgoings
- Equity release
Reasons why you might want to downsize:
Reduce monthly costs
The larger your property, the larger your maintenance and running costs are likely to be. Regular expenses such as council tax and energy bills are likely to be significantly reduced if you move to a smaller property, and property maintenance may also cost you less. If you’re struggling to afford the upkeep of your property, or would like to free up some more money each month, downsizing to a smaller property could be a good option for you.
For many homeowners, their house will be their largest financial asset. As a result, it is not uncommon to downsize in retirement in order to free up a lump sum that can be invested and used as an extra income.
If you’ve owned your property for a substantial amount of time, and have little or no mortgage outstanding, this will be a particularly attractive prospect.
Pay off mortgage
Mortgage repayments are a significant monthly cost, and many people dream of living ‘mortgage free’. This is increasingly the case as people approach retirement. If you feel your current property is larger than you need, you may consider moving to a smaller property in order to clear your outstanding mortgage and free up a substantial amount of money each month.
Invest in other property
You may wish to access the money tied up in your house in order to purchase a holiday home or invest in a buy-to-let property. Whether you’re looking to increase the number of holidays you have each year, or are interested in investment property to generate an additional income, downsizing can be a great way to fund the purchase of a second property.
Divorce or relationship breakdown
Unfortunately, there are times when downsizing will be a necessity. This is often the case after a relationship breakdown or divorce. You simply may not be able to afford to remain in the property if your household drops from two incomes to one.
Help your children buy a property
Attitudes towards property wealth and inheritance are changing. Many parents now feel that being able to help their children purchase a property is more valuable than leaving a traditional inheritance when they die. Whereas large family homes may historically have been kept in order to pass down as inheritance, more and more homeowners are now choosing to downsize and cash in earlier, providing valuable financial help to their children at a time when they feel it is more useful.
Pay off debt
If you own a property but are struggling with debts, you may wish to consider downsizing to achieve financial freedom. Downsizing to pay off debt is not a decision to take lightly, and your ability to do so will depend on how much equity you have in the property, so it’s important that you think through all options.
When is the right time to consider downsizing home?
Homeowners downsize for a variety of reasons, so choosing when to downsize your house will be a very personal decision. There is no one ‘right time’ to consider the move. Some may want to downsize once the children have flown the nest, whilst for others financial motivation, such as a desire to pay off debt, may dictate the timescale. Downsizing becomes increasingly popular as homeowners approach retirement, but it’s something that any homeowners may consider at any time.
How to downsize
Once you’ve made the decision to downsize to a smaller home, you’ll need to think about the best way to do it. Downsizing is like any other house move where you need to sell and buy a property simultaneously. There are several options when it comes to downsizing your property.
Downsizing using an estate agent
A lot of people will choose to downsize using high street estate agents to sell their current property and find their next one. This will enable you to achieve the best possible price for the property you’re selling, but it can be difficult to coordinate your sale and purchase.
Selling a property at auction to downsize
Selling your property at auction in order to downsize has the potential of offering a quicker sale (any sale will be required to complete within 28 days of the auction), but it’s important to remember that there is no guarantee that your property will find a buyer at auction, and if the property does sell it is likely to be at less than market value. The unpredictable nature of the open market means that you may also struggle to tie up the purchase of your next property with the completion of any auction sale.
Using part-exchange to downsize
If you’re looking for speed and convenience, you may want to consider using a property part-exchange service. Part-exchange services may be offered by new build property developers and some retirement property companies. As with selling at auction, it’s likely that you will need to be willing to accept less than market value for your property and it may only be available on certain properties in a development, so your choices may be limited.
Downsizing using a professional home buyer
If you like the sound of property part-exchange, but don’t want to buy a new build or retirement property, you could consider using a professional home buying company. Like the part-exchange services offered by new build developers, a genuine professional home buying company will purchase your current property directly with their own cash funds. This means the sale can be tied up on a date of your choice and can be completed very quickly, which is very useful if you’ve found the property you want to move to but are struggling to sell your existing house. You will need to be willing to accept less than market value for your property, but in exchange you get a hassle-free, guaranteed sale on a date of your choice.
How to downsize your home quickly
If you’re in a hurry to downsize, perhaps due to health issues or financial concerns, a property part-exchange service or professional home buyer are likely to be your quickest option. In addition to the speed they can offer in terms of completing the sale, they also offer a secure purchase; you won’t need to have any concerns about your buyer pulling out of the sale or the property purchase chain collapsing.
Do I need to downsize my house?
Whether or not you need to downsize will depend on your personal circumstances.
If your motivation to downsize is purely financial, there may be other options available to you. Equity release in the form of remortgaging or equity release may enable you to release a lump sum.
Will I need to downsize after divorce?
Downsizing as a result of relationship breakdown or divorce may be avoidable if you can afford to buy your former partner out of the property. You may also be allowed to remain in the property if you have children under the age of 18, but again this will depend on your personal circumstances.
Is it worth downsizing house if I don’t have much equity?
Even if you do not have a large amount of equity tied up in your property, downsizing may still be the right move for you in order to reduce your monthly outgoings and the amount of upkeep and maintenance required. It’s important to seek independent financial advice to ensure you make the right decision for your personal circumstances.
If you’re considering downsizing, these tips could help to get you started:
- Make a list of the pros and cons of downsizing to help you decide whether it’s the right move for you
- The key to downsizing is organisation. If you decide to go ahead with downsizing, try buying a new notebook to keep any lists and information relating to the move in one place.
- Downsizing your home will undoubtedly require you to downsize your possessions. Create a furniture inventory and highlight items you definitely want to keep. This will help you search for a suitable smaller property.
- Start decluttering as soon as you decide you’d like to consider downsizing. Decluttering always takes longer than you think it will, and it will be difficult to find the right property to move to if you’re not sure how much space you’re going to need.
- If you have grown up children who already have their own homes, don’t let them use your property as a storage facility. Pass on any childhood mementos or possessions still in your property and let them decide what to do with them.
- Time to get shredding! Many of us hold on to old household documents and paperwork much longer than necessary, and it takes up a lot of room. Some documents are important and should be kept, but having a drawer full of old utility bills is unnecessary. Always shred old documents rather than binning them to prevent identity theft.
Find out more about:
- Freehold vs leasehold – what’s the difference?
- House completion – the process
- Buying a house with subsidence
- Can I sell my home and rent it back?
- Structural survey – all you need to know
- What is a memorandum of sale when buying or selling a house?
- What are title deeds?
- When was my house built?
- Should I sell my house to pay off debt?
- Retirement planning – should you sell your house?