What should I consider before downsizing?

Dan Moore / 02 March 2015

Downsizing means selling your current home and moving into a smaller, and typically cheaper, property.

It’s traditionally been seen as an option once offspring have flown the next, or when the task of maintaining, repairing, cleaning and heating a large home becomes too onerous.

Read our top tips for downsizing....

Downsizing and helping the children

Downsizing isn’t just an option for the elderly or people with health issues. It could be the answer if you want to raise capital in order to clear an outstanding mortgage or other debts or, for example, provide a deposit for a child’s first home.

If you have grown-up children still living with you, you are not alone. According to the Office for National Statistics, 3.3 million 20 to 34 year olds lived with their parents in 2013, 25% more than in 1996. Rising house prices have made it more difficult for young people to get a foot on the property ladder. Those that do manage it are likely to have been helped by the bank of mum and dad.

Savills, the estate agents, reckons around 55,000 households downsize each year, freeing up approximately £7 billion of equity, of which around half is used to help offspring buy their first home.

If you are considering downsizing, here are some things you need to consider…

1. Competition could hit your profits

You may get a decent price for your current home, but if you downsize too much you could find you are in direct competition with first-time buyers.

Halifax estimates the number of first-time buyers stepping on the property ladder grew by 22% in 2014. As a result, the average cost for properties bought by first-time buyers increased by 9% to £171,870.

For downsizers, this could mean that more of the proceeds from their property sale are eaten up by the cost of buying their new home. This includes legal, surveyor and estate agent fees, not to mention Stamp Duty.

Avoid the six sneaky tricks estate agents might try.

2. Downsizing may help avoid the ‘mansion tax’

If Labour wins the general election, perhaps in coalition with the Lib Dems, the new government will probably introduce a ‘mansion tax’ on properties valued at more than £2 million.

Homeowners with a property of between £2 million and £3 million could expect to pay an extra £250 a month in tax. Those with even more expensive homes will pay higher levels of tax depending on the value of their property. The mansion tax could lead to more homeowners selling up and downsizing.

3. Get expert advice

Whatever reason you may have for wanting to downsize, you should seek financial advice, not only to ensure all the costs involved with moving home are taken into account, but also so you have a plan for what to do with the money you free up. For example, you may wish to save or invest it for your retirement. 

If you don’t feel ready to move from your home, there are other ways to access lump sums of cash, such as equity release and drawing money from your pension pot.

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Related: Discover a new way of living at Wadswick Green

Set in the heart of the Wiltshire countryside we offer those looking to "right-size" the chance to acquire premium-quality apartments in a contemporary village alongside all the facilities of a five-star retreat. Find out more about Wadswick Green.

The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.