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Thinking of downsizing? Here’s what you need to consider.

Thinking of downsizing? Here’s what you need to consider.
Claire Smith

Author: Claire Smith - Content Writer

Updated: July 27, 2022

Deciding to downsize is a common step for either an individual or couple to take in the process of adapting to a new phase of life.

Perhaps children have grown up and left the family home, or maybe there are unforeseen circumstances, such as divorce or the loss of a spouse or partner. A move is often prompted by the financial gains that come with it, but there are alternatives to consider and a number of factors to explore before taking the leap too.

What are the pros of downsizing?

Let’s start with the advantages…

Free up money

If you have paid your mortgage off, or a good portion of it, and plan to move to a property that is worth a lot less, you will stand to gain a substantial lump sum from your sale. For people whose assets are tied up in their home’s equity, this will help if your income is not adequate enough. A healthier financial circumstance can leave you with money in the bank to help make retirement more comfortable, to pay for expensive care, for lifestyle changes or to help offspring get on the property ladder.

Reduces burdens

As well as gaining cash, downsizing can also lighten the load of responsibilities that bring about expense or stress. For example, a large house that is tough to maintain, both physically and financially, with extensive utility bills, can take its toll as you get older and income has reduced. A smaller home could bring more joy and peace overall.

Eradicates need for complex financial moves

For those who want to remain in their long-term home but are facing hardship with low income or increasing healthcare bills, there are other options to downsizing, which we will outline later. However, it would mean going down the route of remortgaging or equity release, which might be off-putting for some. If you do, make sure you get a good broker on your side to navigate the process.

New lifestyle

A new chapter in a new home, and maybe even a new location, might bring about some positive changes that aren’t all to do with money. Making new friends, being closer to the things you love, be it people, the countryside or a city, can provide a whole new lease of life. If you’ve been thinking about the environmental impact that wasted living space brings, downsizing would reduce your carbon footprint and put your mind at rest.

What are the cons?

Now, here’s the potential drawbacks….

Asset loss

If you’ve paid your mortgage off on a large property, there’s a good chance that your home is your biggest financial asset. The pros might counteract this fact for you, but it’s still worth considering that selling immediately stops any gains in increasing property prices you’ll see on your well-earned investment, either for yourself in the future or to leave to any heirs.

Less room

It might sound obvious, but try to understand what downsizing would fully mean for shaping your lifestyle. Having smaller living quarters might mean less storage for belongings you might easily fit in now, perhaps relinquishing a garden or space for having guests around. If your plan is to spend your retirement abroad in sunnier climes, releasing funds to downsize makes perfect sense. If you’d rather spend it in the company of grandchildren, family and friends in your home while tending a garden, downsizing dramatically might be more of a hardship.

Moving costs

Don’t forget that buying and selling property does come at a cost. Understanding how much it costs to buy another home and what fees to expect is crucial so you can weigh up the finances and make sure it makes sense.

Alternatives to downsizing

There are several alternatives that older borrowers can consider if downsizing isn’t the answer.

The main ones include…

Equity release
Retirement interest-only mortgages

There are a number of ways to release money tied up in your home without having to sell up. Lenders provide these specific equity release products to over-55s, and while they’re packaged in different ways, essentially they involve borrowing the equity you’ve accumulated in your home. Lenders usually allow you to take this as a cash lump sum or in smaller installments, or both.

This guide about equity release explains lifetime mortgages and home reversion plans in detail. You could also consider remortgaging into retirement.

If you’d rather keep on a mortgage in order to release equity, these loans work in a similar way to regular interest-only mortgages, but they have no end date. They keep repayments lower than a standard mortgage and there’s more chance of being able to pass on inheritance.

Read more about this option in our retirement interest-only mortgage article.

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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