Downsizing Home: Pros, Cons and Considerations
- Downsizing home isn't just for pensioners
- There are many benefits to downsizing, beyond financial
- Downsizing may not be suitable, especially if you rely on income from letting rooms to lodgers
What is downsizing?
Downsizing is when you sell your home to buy a smaller one. It has typically been associated with 'empty-nesters' who no longer need their, now-grown, children's bedrooms, or pensioners who are looking to release equity for retirement.
It has become more popular in recent years with homeowners downsizing home for money, hoping to simplify their lives and live more comfortably within their means. It may also be an option to consider for those struggling with the cost of living crisis and increased mortgage payments.
While this is not realistic for those of us who are overflowing our living spaces already (though relocating may be an option, with Londoners saving up to £1,500 per month in mortgage payments by leaving the capital), it could help homeowners with more space than they need to reduce debt, as well as their monthly liabilities.
What are the pros and cons of downsizing?
What are the benefits of downsizing?
- The first and most obvious benefits are financial. Depending on how much equity you have in the property and how much of it you need to spend on your new home, you could reduce or eliminate your mortgage debt and significantly reduce your monthly outgoings. You may even end up with cash left over, to spend or reinvest.
- If you are able to eliminate your mortgage debt altogether, you will have the added benefit of purchasing your next property as a cash buyer, giving you more choices of property, a quicker transaction, and it may also earn you a discount.
- Downsizing can facilitate homeowners to relocate to a more expensive and more desirable neighbourhood.
- The maintenance and running costs of a smaller home are lower, so your utility bills should be reduced.
- Having decluttered and with a smaller space to clean and maintain, you'll have less stress and more time to spend on the things you enjoy.
- For older homeowners, or those with mobility issues, moving to a smaller, single-storey home can be much more practical & accessible.
- For some, downsizing will mean being able to comfortably afford your basic costs, for others it may give you even more financial freedom to travel, retrain, gift funds to a loved one to buy their own first home, invest in a new business, or take the leap to go self-employed.
Is there a downside to downsizing?
- Some homeowners like their space and their things. If you don't want to give up your space, your lifetime's collection of belongings or your sentimental attachment to your home, then downsizing probably isn't for you.
- Some homeowners who are keen to downsize can struggle to find a smaller, cheaper property which ticks other non-negotiable boxes, such as location. If you live in an area full of large, family homes, you may struggle to find something suitable without relocating at the same time.
- Availability can also be problematic. With more affordable homes in high demand, there may be a shortage of options on the market. While sales of smaller homes have not fallen much this year, sales of three and four-bed homes were down 40 per cent in July 2023.
- Many people with more space than they need can let rooms to lodgers, bringing in extra income (though this will come with tax implications) and enjoying the social aspect of living in a shared home. If you enjoy letting rooms and rely on the income, then downsizing home may not be financially or socially beneficial.
When should you downsize to a smaller house?
Whenever you want to! Downsizing makes sense when the kids have moved out, when you need to release some cash, want to be mortgage-free, or when you are retiring and want to release some equity to enjoy your free time.
It's important to be realistic about what you're giving up and what you can afford. You can only downsize when you are ready to part with much of your belongings and make some changes to the way you live. You need to look at how much smaller you are prepared to go, how much that will cost you in the location(s) you want to live in, calculate the financial benefit and weigh that benefit against what you will be giving up by selling your current home. We explain more about how to approach this process in our article - How to Downsize Your Home.
If you are ready to downsize, embrace a more minimalist lifestyle and reduce your cost of living, we can help you with your sale and purchase.
How do I start downsizing my home?
- 1
Are you sure?
Are you excited about downsizing? If it is simply an unfortunate necessity, have you exhausted your other options? Could you let out a surplus room to help cover some of your costs? If you need to liquidate funds, have you considered equity release? Downsizing is a big decision, so don't go into it lightly. It may be worth speaking to a financial advisor who can help you work out your options.
- 2
Location, Location, Location
While you're downsizing, you may want to relocate; is this part of a lifestyle change which would be better off by the sea? Are you downsizing to move into the city? This is an exciting opportunity to start a new chapter, it's worth taking some time to choose carefully. If you can, try visiting the area in different seasons, so you can get a real feel for the place.
- 3
Review the market
Now you know where you're moving to, you need to review the market and see what you can afford with your budget. House prices vary significantly by location. What compromises are you willing to make? If you're moving to a more expensive area, how small will you have to go? Are you willing to give up the garden? The kitchen space? If you are moving to a less expensive area, is there a reason it is more affordable which might indicate it is an unwise investment? For example, if house prices in the area are falling, you might want to reconsider buying here.
- 4
Consider mortgage
If you are close to the end of your mortgage, you may want to consider paying it off before you sell. If you are moving to reduce debt, you may be able to repay a sizeable chunk of your mortgage but still fall short of the purchase price and need a new, smaller mortgage to buy your new home; how much are you willing or able to borrow for this move?
- 5
Declutter
Decluttering is a huge topic of its own, with books and TV series and whole professions dedicated to it. It is unavoidable if you need to downsize, so the sooner you get started, the better. Start sorting things to sell, gift or donate and begin moving things out that you'll no longer need in your new home. Decluttering can really help to sell your old home too, making it feel more spacious. Consider keeping larger items of furniture which complement the house so it doesn't look too empty; your buyers may be keen to purchase them with the house.
- 6
Instruct your solicitor
Technically, you don't have to instruct your solicitor until an offer is accepted. Instructing early means that your legal team are ready to go as soon as the ball starts rolling. It also allows you to choose your own solicitor, by comparing quotes and reviews, rather than being pressured into using your estate agent's choice. With SAM Conveyancing, our fees are fixed and your conveyancing deposit is protected by our No Sale, No fee Guarantee, so if your first transaction falls through, we'll just apply your deposit to the next one.
- 7
Prepare your home
Certain home improvements can help you attract more buyers, more quickly, and sell for more money. You'll be pleased to know that a full renovation is not necessary. However, if you have the time and the funds to do so, a valuer can give a calculated estimate of what your proposed renovations would add to the value of the property, for you to weigh against your builder's quote for the work. It can also be helpful to have an independent valuation if you disagree with your estate agent's suggested listing price.
- 8
Start shopping for your new one
The fun part! Start shopping for your new home - read our House Hunting Tips. It helps to have a list of dealbreakers at this point, so you don't fall in love with a property that isn't going to be suitable. Contact estate agents in the area and tell them what you're looking for, so you can be first to know when an ideal property comes onto the market. When you've found 'the one' be sure to read our guide on how to make a winning offer.
Without Killing Anyone
This book could be the difference between every mover’s dream, buying and moving into your new home stress free, or, stress, missed deadlines, legal disasters, building defects, and possibly the collapse of the whole transaction. (Costing you a small fortune, a head full of grey hairs, and, driving you to threaten the life of your solicitor, lender, co-owners, family, partner, or some combination of all five).
With more than two decades’ experience in the conveyancing sector and over 50,000 successful client moves under his belt, Andrew shares insider tips and advice to empower you as a buyer, giving you the tools to make the best decisions for your circumstances and ease the chaos.
Available on Amazon | Kindle | Paperback
Caragh is an excellent writer in her own right as well as an accomplished copy editor for both fiction and non-fiction books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey and mortgage related articles.
