A Guide to Downsizing Your House

After a lifetime climbing the property ladder, you might be uncertain about moving to a smaller property. But downsizing your home can not only put more money in your pocket straightaway, but it can also save you money in the long run and create opportunities that would have been otherwise closed to you. We’ve put together a complete guide to downsizing your home to help you make the right decision, and provide some tips and strategies based on our experience of helping countless customers downsize their home.

Is it Worth Downsizing Your Home?

Only you can decide if downsizing your home is the right choice for you. And, from your finances to your space needs, there are a number of things to consider before you make your decision. We’ve collected some of these factors here, as well as answering some of the questions our customers often ask us.

What to Consider When Downsizing Your Home

There are a number of factors to consider when downsizing your home. When deciding whether downsizing is the right move for you, make sure you consider the following:

Your finances. Downsizing your home can result in a smaller mortgage, meaning lower monthly payments or, potentially, being mortgage-free altogether. You may also spend less on council tax, as well as heating and electricity costs!
Maintenance. The upkeep of a larger house can be a lot of work. If you’re finding the maintenance overwhelming, you may prefer a smaller home.
Your new home. Remember that this is still a move. Can you afford the property you want? Do you know what you want from your next home?
Costs. In the same vein, remember that each move involves its own costs, such as removal costs and stamp duty. You need to make sure you take these into account.
Flexibility. Having more space than you need means you can host guests, enjoy hobbies that require a lot of room, or even take on lodgers to help with costs. Do you want to sacrifice that?
The long term. If you’re not sure where you want to live for the longer term, perhaps for your retirement, you may want to hold off on downsizing so as not to go through the upheaval of another move. This will also save you the costs of multiple moves.
Your motivations. Ask yourself why you want to downsize. You don’t want to complete your move only to regret it because you downsized for the wrong reasons.

What Happens to My Mortgage if I Downsize?

Depending on the value of your old home and the value of your new home, you may be looking at a smaller mortgage or no mortgage at all. If the sale of your old home provides you with more than the value of your old mortgage, you can use the money to pay off that mortgage. You would then use the remaining money to take out a mortgage on your new home. Downsizing to a home of a lower value means that your monthly mortgage payments will be lower. Depending on the value of your old home and the size of your new mortgage, you may even have some cash left over! Alternatively, if the proceeds from the sale of your old home can pay off your old mortgage and buy your new home outright, you’ll have no mortgage at all!

Is it Worth Downsizing a House to be Mortgage-free?

Every homeowner aspires to become mortgage-free, and downsizing your home is a fantastic way to achieve that goal. If the proceeds of selling your old home can pay off your mortgage and cover the costs of your new home, you’ll enjoy:

Lower monthly expenses: no monthly mortgage payments reduces the pressure on your income, a particular boon as you approach retirement.
Better financial security: owning your home outright gives you greater financial freedom, especially if you’re approaching retirement.
Greater opportunities: you can save or invest the money you used to have to pay towards your mortgage, indulge in adventurous holidays, support children and loved ones; the possibilities are almost endless!

It’s worth remembering that downsizing does come with its own costs, though, and it’s vital to remember that we’re talking about your home. Being mortgage-free is wonderful in many ways, but don’t give up a beloved home to get there if you don’t need to. Before taking any significant decision, it’s worth speaking to a financial advisor, as well as your mortgage lender, to help you determine the best course of action.

Will I Have to Pay Tax if I Downsize My House?

Depending on your circumstances, you may be liable for tax when you downsize your home. Alternatively, you may not pay any tax at all!

Stamp Duty Land Tax (SDLT)

You may have to pay Stamp Duty Land Tax on the purchase of your new home depending on its value. Currently, only properties over the value of £250,000 are liable for stamp duty, though this may change in the future. Check to see if you’ll be liable for this tax before making any offers on a property.

Capital Gains Tax

You won’t have to pay Capital Gains Tax on the sale of your old home as long as:

It was your main home the entire time you owned it.
You didn’t rent it out or use any of it for a business.
The land it’s on is less than 5,000 square metres.

If any of these three are true, than you will be liable for Capital Gains Tax. Find out exactly what you might owe in the Government’s dedicated guide.

Inheritance tax

Downsizing your home won’t impact on any inheritance tax paid as this is paid on the first £325,000 of your assets you leave behind; if you leave your home to your children or grandchildren, this threshold rises by £175,000 to £500,000. This doesn’t mean your children will miss out if your new home is worth less than £175,000; the threshold rises regardless of the exact value of your home.

How to Downsize Your Home

If you are sure that the time is right to downsize your home, the following advice and tips will help you.

Declutter

Downsizing is a perfect opportunity to get rid of anything you don’t need or use. This won’t just make it easier to pack, move, and fit in your new, smaller space; it will also make your living space cleaner and less cluttered! Decluttering also helps you identify what you don’t need and what you can’t bear to part with, so it’s worth doing this before you begin the process of downsizing; knowing how much you want to take with you will help you select the home that’s right for you!

Plan for the Future

Do you want your new home to see you into retirement? If so, where do you want to be? Think about the geography, the amenities, the proximity of friends and family. Think about what you want from the home itself. Do you need a home office? Will you want a garden to tend in retirement, or do you want something easy to maintain? It’s tempting to see downsizing as a purely practical exercise, but it’s an opportunity to find your next dream home. Plan carefully and make sure you end up in the place that’s right for you!

Ensure You Know the Size of Your New Space

Get accurate measurements of your new home to ensure that any furniture you’re taking will fit into the new space. And don’t think you have to get rid of anything that won’t fit. There are plenty of companies that can keep your valued collections or treasured pieces in environmentally-controlled facilities to keep them well-preserved without having to clutter your new home.

When to Downsize Your Home

When to downsize is as personal a decision as whether downsizing is the right choice. Ultimately, only you can decide when it’s time to downsize. Some people choose to downsize as soon as the move will help them become mortgage-free. Others wait until they start preparing for retirement, while others wait until they’ve already retired and they’ve decided what comes next. One thing to bear in mind is that downsizing can result in lower monthly costs, even if you’ll still be paying towards a mortgage. From that perspective, downsizing sooner rather than later makes better financial sense. On the other hand, if your children aren’t settled in their life away from home just yet, you may want to hang on to the extra space in case you need it. Or, if they’ve started families of their own, you may want to be able to invite them to stay - or invite the grandchildren for sleepovers! Ultimately, only you can decide when it’s time to downsize. A financial advisor can help you make that decision if you’re not sure about the financial aspects of the decision; we would recommend speaking to one to get a clear idea of what’s right for you.

Is it Time to Downsize Now?

If downsizing is right for you and the time is right too, get in touch with a member of our team today. We’ve helped countless customers find the right home by listening carefully to their needs and using our local expertise to find a property that’s just right for them. And when it comes to selling your old home, our service is unrivalled. In 2021, we secured 99% of the asking price on average for our customers, and we’re sure we can do that for you. Our local estate agent teams use their expertise to help you attract the right buyer, prepare your house for viewings, conduct the viewings for you, and secure the right price for your home. Speak to our team today to find out how we can help you downsize your home and start your next chapter.