Five questions to ask yourself if you’re considering downsizing

Deciding whether or not to downsize can be really difficult, especially if you’ll be leaving a much-loved family home.

There are lots of reasons people think about downsizing. It could be, for example, that their current property and garden is too big for them to manage, or that now their children have flown the nest, they simply don’t need so much space. Many people consider downsizing due to financial reasons whether that’s to fund travelling, or to free up cash to supplement their retirement income, or because they’ve lost their job or seen their income fall due to coronavirus.

According to over-55s financial specialists Key, around a third of over-65 homeowners, equivalent to 1.45m people, are considering downsizing within the next five years.

The current Stamp Duty holiday has prompted many to consider bringing forward their plans, with property website Rightmove reporting that in August it saw the highest number of UK properties coming to the housing market in a single month since March 2008.

There’s usually no Stamp Duty to pay on property purchases costing up to £125,000, or £300,000 if you’re a first-time buyer, but the Chancellor Rishi Sunak has temporarily raised this threshold to £500,000 for everyone buying in England and Northern Ireland until the end of March next year, saving buyers up to £15,000. Scotland has different Stamp Duty thresholds, but has raised the starting point at which Stamp Duty becomes payable from £145,000 to £250,000 following the changes to Stamp Duty rules in England. The threshold at which stamp duty becomes payable in Wales has also temporarily risen to £250,000, up from £180,000. You can find out more about how Stamp Duty works here.

If you are thinking about downsizing, it’s vital to weigh up all the pros and cons first. Here are some of the things you’ll need to think about.

Are you ready for the upheaval of a move?

There’s no escaping the fact that moving home is a massive upheaval.

The whole process of viewings, both of the property you’re selling, and potential properties to buy, can be both time-consuming and difficult enough – and that’s before you have to go through the conveyancing process and the actual move itself.

You’ll need to think very carefully about exactly what downsizing involves, and whether you’re ready for it. If you’re worried that it’s not something you’ll be able to cope with at the moment, perhaps because you’ve got other things you’re dealing with, you might want to put your plans on hold until you feel better prepared.

Where do you want to move to?

Where you move to next is really important, and many people who are planning to downsize are keen to stay in the same area as they’re currently living, as this may be near to friends, family or both.

Often staying in the same location can be tricky however, as there may not be a wide choice of properties available. Research by Key found that a massive 620,000 homeowners over the age of 65 who’ve investigated downsizing say they can’t find a suitable home in their area to move to.

If you’re struggling to find a property in the area you like, you might want to consider widening your search area a little. This may give you a bigger selection of properties to choose from.

If you’re planning to move further afield, perhaps to an area where property prices are cheaper, or to be closer to children and grandchildren, and you don’t have many friends in the area , make sure you have good access to transport links and shops. You may also decide that you need a spare room so that friends or family can come and stay.

What will you do with surplus furniture/ possessions?

When downsizing, you not only need to come to terms with leaving the home you may have lived in for years, but you’re also probably going to have to part with some of the possessions you have accumulated over the years and might love.

It’s a good idea to use a floor plan of the property you’re going to buy to help you work out what you can and can’t take with you. Sometimes mapping this out on square or grid paper, which you can buy on Amazon.co.uk or at most stationery shops, can give you a really good sense or what will fit, and how things will look when you’re in your new home – it can also be quite fun!

For some, having a good clear out can be hugely cathartic, but for others it can be highly emotional saying farewell to some of the things they’ve had for years. Try to see getting rid of things that you won’t be able to take to a smaller property as a positive step – there will be less to clean for a start!

One of the first ports of call can be to offer things with emotional or family history to children, grandchildren or any siblings or nieces and nephews – they might be delighted to be given the honour of looking after them and it can help knowing they are going to a good home.

For anything else, consider donating items to a charity shop – again it can help knowing that they will be reused, rather than thrown away and that someone somewhere will benefit from them. You might also be surprised at how much you could make from selling your items. If you’re considering having a good clear out you might be interested in reading our guide on making money from your clutter.

Have you factored in all the costs of moving?

The current Stamp Duty holiday may mean that you escape paying this tax if the property you’re purchasing costs less than £500,000, but you still need to factor in other moving costs. These are likely to include:

Mortgage redemption penalties

If downsizing will enable you to free up enough money to pay off your mortgage, make sure you check whether you’ll have to pay any financial penalties when you do so. If you’re currently tied into a fixed, tracker or other special rate, you may have to pay a charge for redeeming your mortgage early. This is often a percentage of your mortgage and can run into thousands of pounds, so check with your lender how much you’ll have to pay. If it is a substantial amount, you may decide to wait until the early redemption penalties no longer apply before you downsize. Depending on the type of mortgage you have, you may also be able to port your mortgage to your new property to avoid paying any early redemption charges – and simply pay it off at the end of the term. If in doubt, give your existing lender a call and they will be able to talk you through your options.

Legal fees

You’ll need to pay a solicitor to help with the conveyancing, which involves the legal transfer of your old home and your new property from one name to another. According to the website Conveyancingstore.co.uk, the average conveyancing fee when buying a property is around £1,040, and the average conveyancing fee for selling a home is around £1,000.

Estate agency fees

Most people sell their homes through an estate agent who will market the property and co-ordinate viewings, as well as providing support through the sale process. Estate agents will typically charge between 1% and 2% of the property’s sale price, so it’s important to factor this in, as if you’re selling a more expensive property, fees can run into tens of thousands of pounds.

Survey costs

When you’ve found the property you want to downsize to, you’ll likely want to have a survey done. These range in cost from around £300 for a report outlining the basic condition of the property, to between £600 and £2,000 for a comprehensive building survey. If you are taking a mortgage out on the new property, most mortgage companies will insist on having a survey done.

Removal costs

The cost of removals will depend on the size of the property you’re moving from, but according to website Reallymoving.com, the average cost of removals for a 3 bedroom house is £595, whilst for a 4-bedroom house removal fees typically average £850. 

Stamp duty

Although there’s no Stamp Duty to pay if you’re purchasing a property costing less than £500,000, you will have to pay this tax if the property costs more than this. Stamp Duty rates during the holiday period in England and Northern Ireland are as follows:

·   Up to £500,000: 0%

·   On the portion from £500,001 to £925,000: 5%

·   On the portion from £925,001 to £1.5m: 10%

·   Above £1.5m: 12%

In Scotland, where Stamp Duty is called Land and Buildings Transaction tax, rates are as follows

·   Up to £250,000: 0%

·   On the portion from £250,000 to £325,000: 5%

·   On the portion from £325,001 to £750,000: 10%

·   Above £750,000: 12%

In Wales, Land Transaction Tax rates are as follows:

·   Up to £250,000: 0%

·   On the portion from £250,000 to £400,000: 5%

·   On the portion from £400,000 to £750,000: 7.5%

.   On the portion from £750,001 to £1.5m: 10%

·   Above £1.5m: 12%

The government offers a useful Stamp Duty Calculator which can help you work out exactly how much Stamp Duty you might have to pay.

Other costs

There are several other costs to consider when you downsize. According to research by comparison site MoneySuperMarket.com, home-movers spend an additional £696 each time they move house, on top of estate agency fees, legal fees and stamp duty. It says the most common additional costs incurred by Brits when moving home include purchasing new household items such as bedding and kitchen utensils (53%), buying new furniture (53%), paying for post to be re-directed (39%), paying for the installation of WIFI (36%) and changing bill providers (34%). If you’re looking to reduce your bills, use our energy comparison and broadband comparison services to see how much you could save on your energy and broadband costs.

Have you considered alternatives to downsizing?

If you’re not sure whether downsizing is right for you, there may be other options you could consider.

If, for example, you are selling your home to free up capital to repay an interest-only mortgage, you might want to think about remortgaging to a retirement interest-only mortgage. This type of mortgage is typically aimed at borrowers in their 50s and 60s who are approaching retirement. They are usually easier to qualify for than standard interest-only mortgage deals, which typically come with age restrictions for when the debt must be repaid.

RIO mortgages enable you to carry on making interest payments indefinitely, with the loan paid back only when you die or move out. By contrast, a standard interest only mortgage finishes on a specific date and you must repay the capital you owe on this date. Find out more about how retirement interest-only mortgages work here. If you’re not sure which mortgage deals you’ll be eligible for, or what age you can borrow up to, fee-free mortgage brokers such as Fluent Mortgages or London & Country Mortgages can research the various options that may be available to you on your behalf.

Another option you may want to consider is equity release, which as the name suggests, enables you to unlock some of your property wealth, while continuing to live in your home.

The most popular type of equity release plan is a drawdown lifetime mortgage, where you release equity as and when you need to, and interest on the amount you have released rolls up over time.

You only have to repay the loan, along with all the interest you owe, either when you and your partner pass away or go into long-term care.

However, there are plenty of downsides to consider, not least that equity release can be an expensive way to access cash compared to remortgaging or downsizing and rates are typically higher than standard mortgage rates.

Releasing equity from your home may also significantly reduce the value of any inheritance you planned to leave, and may mean you won’t be able to rely on your property later in your retirement, for example, to cover long term care costs. It can also affect your entitlement to means-tested benefits, as you’re turning money that was locked up in your home into capital or income. So whilst in certain circumstances, equity release can be helpful, it’s not something that should not be entered into lightly. You can find out more about the advantages and disadvantages of equity release here.

Have you downsized recently, or is it something you’re considering doing? Do you have any tips for people who might be considering moving to a smaller property? We’d be interested to hear from you. You can get in touch at [email protected] or leave a comment below.

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6 thoughts on “Five questions to ask yourself if you’re considering downsizing

  1. Avatar
    Joanne on Reply

    For a move it’s important to think about how you build social networks in tour new home. The significant change of moving home to an area where one doesn’t yet have any Social connections, can have more of an impact than you would may have thought. I saw it happen with my parents who moved after 65 and have learned from their experience to starting to build networks before my move in a few years.

    1. Avatar
      Jilly J on Reply

      I completely agree . My mum is on her own and move cities when she was 70 – with isolation happening , she feels particularly lonely and is quite upset at leave her social network behind. She misses her group of friends and although they email each other , she feels so overwhelmed that they are not near by

  2. Avatar
    Donna on Reply

    I am a widow, my family grown up and left home.ive got 3 bed semi detached worth £145,000. Even moving to a smaller dwelling in my area or next town is so expensive. Plus the money you lose on agency fees and solicitors it’s about £12000 knocked off the sale of your house. So it’s not always wise to sell unless you got property worth alot more than mine.

  3. Avatar
    Anonymous on Reply

    I’m considering down sizing from a 3 bed terraced house in Manchester to a 2 bed flat in Northwich…
    I have no mortgage n will be paying outright.

  4. Avatar
    Anonymous on Reply

    Really good advice Joanne re building your own social networks. And if you have to move nearer your children, you still need your own age appropriate social networks.
    My neighbour who is a GP has mentioned dealing with depressed over 70s moving either with or nearer their children and find they have no friends of their own.

  5. Avatar
    Anonymous on Reply

    If your thinking of downsizing from a house to an apartment, give it serious thought. Apartments are great if your young and dont mind neighbour noise, late night neighbours, all night parties on wooden floors above you. It can become a nightmare. Make sure it’s sound proofed.
    Lots of luxury apartments are rented out, so not every one is an owner occupier. Or they can be let out on AirBnB. If you like quiet think twice.

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