"A combination of money made on your property or a smaller mortgage - if you still have one - can see a boost to your savings. Plus, with a smaller home, you’ll typically see reductions in utility bills, property taxes, and even home insurance costs."
- Ben Thompson - Mortgage Advice Bureau
If you’re thinking about downsizing your property, you're not alone. As many UK homeowners enter later life, the decision to move to a smaller home can offer both financial and lifestyle benefits. However, there are important factors to consider to ensure the move is the right one for you.
Ben Thompson, Deputy CEO at Mortgage Advice Bureau, shares his top considerations for those thinking of making the move to a smaller property.
Consider your finances
Even though it’s obvious, it’s important you understand the financial situation you’ll be in by selling your property and moving on. It’s an obvious point to make, but once it’s sold, it’s sold. So if your property goes up in value, you won’t be able to reap the rewards of this any longer.
You need to ask yourself if you’re happy to sell your house for what it’s worth as it stands today. If you need or would like more money, you’ll have to decide whether it’s worth staying put for longer in case the property’s value goes up. However, this is always a gamble, as no one can predict which way the property market will turn.
Stamp Duty
Currently, anyone buying a property above £250,000 who is not a first-time buyer will have to pay Stamp Duty Land Tax (SDLT), even if they’re moving from a larger property to a smaller one. Such a tax can potentially result in a hefty tax bill. So before making the decision, it’s worth weighing up whether such a move is worthwhile, whilst also planning and budgeting for this.
Freeing up equity
Although you do need to consider the fees and taxes involved, downsizing can be a way to use some of the equity you’ve built up in your home - especially when it comes to funding retirement.
Downsizing could free up the money you had previously tied up in your home. By considering these factors, you can make a well-informed decision about downsizing that aligns with your financial goals and lifestyle needs.
Potential for increased savings
Downsizing can lead to significant savings. A combination of money made on your property or a smaller mortgage - if you still have one - can see a boost to your savings. Plus, with a smaller home, you’ll typically see reductions in utility bills, property taxes, and even home insurance costs.
These savings can be redirected towards your retirement fund, travel, or other personal interests, allowing you to enjoy more financial freedom in your later years.
Navigating the complexities of downsizing can be challenging, but you don’t have to do it alone. Consulting with a mortgage broker can provide you with tailored advice and help you explore your options. A broker can guide you through the process, ensuring you make decisions that are right for your unique situation.
It’s also important that if you do need a mortgage, you can talk to someone about this and get mortgage ready.
A chance to have a sort-out
Many people panic at the thought of downsizing. “How am I going to fit everything in my four-bed house into a two-bed?”. If you’re concerned, then don’t panic. Things you may have held onto for years, just in case you might need them, will have to go.
There will always be some things that hold deep sentimental value for you, and you shouldn’t just throw these out on a whim. However, there will be certain things that you know, deep down, you could live without. Approach it as though you’re having a spring clean or a house detox.
All in all, the timing needs to be right for you, but sometimes it can be difficult to keep a clear head when your emotions are involved. For this reason, it’s always worth speaking to a mortgage adviser. They can help you look at the situation from a logical point of view, so you can weigh up whether now is the right time for you to make the move and downsize.
