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

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.

What is downsizing?

As the name suggests, downsizing is simply when you sell your current home and move somewhere smaller. Usually, but not always, people downsize to a property that is less expensive than their current home.

When should I downsize my home?

There are lots of reasons people decide it’s the right time to think about downsizing their home. It could be, for example, that their current property and garden are 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 free up cash to supplement their retirement income, or because they’ve lost their job or seen their income fall.

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. Separate research from Audley Villages found that 1.8m over-55s are actively thinking about downsizing their home earlier as a direct result of the pandemic.

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.

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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 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.

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Have you factored in all the costs of downsizing your home?

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 an early repayment charge for redeeming your mortgage. This is often a percentage of your mortgage and can run into thousands of pounds, so check with your lender to see when your deal ends and how much you might 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.

You may decide you want to seek professional advice so you can find the best mortgage option based on your individual circumstances.

If you’re looking for mortgage advice, you can speak to a Rest Less Mortgages advisor and get high quality advice on residential, retirement interest-only, equity release and buy-to-let mortgages.

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, 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, 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

Currently, Stamp Duty rates in England and Northern Ireland are as follows:

  • Up to £250,000: 0%
  • On the portion from £250,001 to £925,000: 5%
  • On the portion from £925,001 to £1.5 million: 10%
  • Above £1.5 million: 12%

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

  • Up to £145,000: 0%
  • On the portion from £145,001 to £250,000: 2%
  • On the portion from £250,001 to £325,000: 5%
  • On the portion from £325,001 to £750,000: 10%
  • Over £750,000: 12%

In Wales, Land Transaction Tax rates are as follows:

  • The portion up to and including £180,000: 0%
  • On the portion from £180,000 to £250,000: 3.5%
  • 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 £750,000 to £1,500,000: 10%
  • Over £1,500,000: 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. You can find out more about how Stamp Duty works in our guide Stamp Duty explained.

Other costs

There are several other costs to consider when you downsize. According to research by comparison site, 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, you can use our money saving tools to compare deals on your energybroadband, mobile phone, car insurance, home insurance and life insurance to ensure you’re getting a great deal with your new providers. Learn more about moving costs in our guide How much does it cost to move house?

Get expert mortgage advice**

If you’d like to talk to someone about your mortgage, you can get high quality advice on residential, retirement interest-only and buy-to-let mortgages from a Rest Less Mortgages advisor.

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Downsizing and inheritance tax

Inheritance Tax rules can be extremely complicated, so it’s worth seeking expert advice on the potential impact downsizing could have on any potential liability.

A recent addition to the already complicated nature of Inheritance Tax is the main residence allowance. This allowance applies in addition to the existing £325,000 nil rate band (above which IHT is payable at 40%) but only where the person who has died is transferring a property that was once their home, to their direct descendants (i.e. children or grandchildren). The residence nil-rate band is currently £175,000, having increased to this limit in April 2020.

If you downsize to a less valuable home before your death, your estate may still be able to get this extra IHT threshold, provided certain conditions apply.

For example, your previous home would have needed to qualify for the additional threshold if you’d kept it until you died; and your direct descendants must inherit at least some of the estate. These rules only apply to those who downsized on or after 8 July 2015.

The amount of the downsizing addition will usually be the same as the additional threshold that has been lost when the former home is no longer in the estate. You can learn more about these rules at GOV.UK. For more information about Inheritance Tax, read our guide Understanding Inheritance Tax. You can explore ways you might be able to reduce any potential Inheritance Tax liability in our article Six ways to reduce inheritance tax bills.

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 (RIO). 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 sell the house. 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 in our guide How retirement interest-only mortgages work

Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for somewhere to start, you can speak to a Rest Less Mortgages advisor and get high quality advice on residential, retirement interest-only, equity release and buy-to-let mortgages.

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 and risks 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. Find out more about lifetime mortgages and retirement interest-only mortgages in our guide

Releasing equity from your home may 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. You can find out more about equity release in our article Equity release: What is it and how does it work?

If you’re looking for somewhere to start, you can get expert advice from a Rest Less Mortgages equity release specialist. They are active members of the ERC and can advise on equity release mortgages from the whole of the market. They’ll listen to your needs and talk you through your options, so you can decide if equity release is the right option for you.

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