Research indicates that retirees have the potential to increase their income through downsizing. Moving from a larger to a smaller property by selling your home could provide a valuable means to finance your later years. However, there are several important factors to consider before making this decision. Keep reading to learn more.

Over the last few decades, the value of the average home in the UK has soared. Indeed, according to figures from the Land Registry, the average home was worth almost £85,000 at the start of 2000. Fast forward 24 years, and that figure has increased to more than £280,000.

As a result, your home is likely to be one of the largest assets you own, and you might be thinking about how you could use it to fund retirement.

Downsizing could boost retirement incomes by £1,218 a month

Research from estate agents Savills suggests there are 1.29 million owner-occupiers aged 65 and over living in a four-bedroom house. The study suggests that if these homeowners downsized to a two-bedroom home, they could, on average, unlock £305,090. 

Based on using the money accessed to fund 20 years in retirement, downsizing could boost your income by £1,218 a month. While this prospect may appear enticing, there are several factors to carefully evaluate before initiating the process of selling your home.

Here are four questions that you may want to answer first.  

1. What is the average house price in your area?

Understanding your local property market is crucial as it will determine the potential financial benefits of downsizing. Researching this aspect beforehand can be particularly insightful.

Notably, according to Savills’ research, there exists a notable disparity in the income boost retirees can achieve based on their location. For instance, downsizing could increase monthly income by approximately £2,523 for those in London, whereas in the north-east, the potential boost lowers to around £826.

In addition to assessing the worth of your current home, it’s important to evaluate the cost of the property you intend to buy. Sometimes, smaller properties may not be as affordable as anticipated. For example, if you’re contemplating purchasing a bungalow in a desirable location due to potential mobility concerns, even downsizing might result in a property with a comparable value to your current home.

2. Do you have an outstanding mortgage?

Having an existing mortgage means you’ll need to consider settling any remaining debt if you plan to release funds for retirement through downsizing. This can significantly impact your budget when looking for a new home. Additionally, depending on your mortgage terms, there might be early repayment penalties to factor into your financial planning.

Downsizing presents a viable method to pay off your mortgage as you near retirement. This approach can reduce your expenses and potentially enhance your financial stability in later years. Nevertheless, downsizing isn’t the sole solution, and having a mortgage during retirement is feasible. If you’re interested in exploring downsizing alternatives, please contact us for further discussion.

3. How much will downsizing cost you?

While downsizing can release funds, it also involves various expenses. These typically include solicitor fees for managing the sale and purchase, estate agent commissions, and moving costs. Additionally, if the property you’re buying exceeds £250,000, Stamp Duty will typically apply. As of 2024/25, the Stamp Duty rates in England and Northern Ireland are as follows:

Please remember that Tax obligations for property purchases differ in Scotland and Wales.

For example, if you’re purchasing a new home valued at £300,000, you should typically budget around £2,500 to cover your Stamp Duty in England and Northern Ireland.

It’s important to note that if you already own an additional residential property, there is typically a 3% surcharge added on top of the standard Stamp Duty rates.

4. Do you want to move home?

While downsizing could potentially boost your income in retirement, it’s also important to consider if moving is the right decision for you.

For some, downsizing might not be the right option. Perhaps having extra bedrooms means your grandchildren can visit more often. 

Moving to a new area can be difficult too. You may have a lot of happy memories in your current home and you’re reluctant to move as a result. Or your home might be close to family, friends, or local amenities you’d miss if you moved.

Are you retired or nearing retirement with a mortgage?

As property prices have increased, more households are retiring with a mortgage. Downsizing could be one way to pay off the outstanding debt, but if you want to remain in your home, there could be other options too. Please contact us to discuss how you could manage retiring with a mortgage.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

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