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Considering downsizing? Make sure you think about these important things first

Downsizing to a smaller property can be a great tool to access the value in your home when you come to retire.

While it may have been fantastic throughout your working life, a large house can feel like a burden when you reach retirement – and it may suddenly feel quite empty if you have children who have now moved out, too.

According to the UK House Price Index, average house prices in the UK increased by 13.6% in the year to August 2022 when data was last available. That means there may be thousands of pounds of value in your home that you could use to fund your lifestyle in retirement.

However, downsizing is a big life change, and there are various considerations you may want to take into account before you decide to move.

So, find out about a few important things to consider first.

Include the costs of moving in your decision

Moving home can be an expensive endeavour, with Barclays estimating the average cost of moving house in the UK to be £11,777. So, carefully considering the different fees you may incur is a useful way to prepare yourself for downsizing.

Stamp Duty

When you purchase your new home, you pay a certain percentage of its value as Stamp Duty, the tax applied to property purchases.

Stamp Duty rates vary depending on the value of the property, with the rate charged on the portion of the property's value. As of the now former chancellor’s announcement in the “mini-Budget” on 23 September, Stamp Duty rates are:

  • 0% on up to £250,000 of the property’s value (or £425,000 for first-time buyers)

  • 5% on between £250,001 – £925,000 of the property’s value

  • 10% on between £925,001 – £1.5 million of the property’s value

  • 12% on the value of the property above £1.5 million.

For example, if you were to downsize to a property worth £500,000, you’d pay 5% Stamp Duty on the value between £250,001 and £500,000.

Stamp Duty is a notable cost of relocating and could even play a part in deciding which house you choose to buy.

Estate agency fees

Another cost you are likely to run into during the process of downsizing is estate agency fees.

The average estate agency rate in the UK is currently 1.18% plus VAT, as Movewise reports. While this may vary regionally, it can help to remember this figure as a reference when shopping around for the best rates.

Additionally, make sure you’re getting value for your money – services such as photography, marketing, floorplans, and managed viewings should all be represented in the fee. Keep an eye out for unnecessary hidden charges.

Solicitor fees

Solicitors are often required for different stages of the moving process, such as conveyancing, and represent another cost to factor into your plan. According to MoneyHelper, the cost of legal fees for moving home typically range between £850 and £1,500 including VAT.

Removal services

Transporting your belongings into your new home is also an expense to be aware of.

MoneyHelper estimates the price of this to range from £300 to £600. However, you could reduce this by renting a van instead.

Choose an appropriately sized home

You should remember that the purpose of downsizing is to unlock value from your current home as your lifestyle changes, perhaps at a juncture such as entering retirement. This means that choosing a suitably sized home to relocate to is crucial.

For example, there is no use in paying for a larger house with a guest room if your lifestyle doesn’t reflect the need for this.

Similarly, due to the expenses that come with moving house, you should be careful that you don’t overestimate the degree to which you’re willing to downsize.

Make sure the house you plan to buy is appropriately sized and not too small – realising this after moving in could lead to another expensive moving process, potentially wasting some of the value you released from your previous home.

Be prepared to clear out some of your possessions

Naturally, as you move into a smaller home, you will likely have less space to store all of the belongings from your last property.

As a result, it’s important to filter through your possessions and discern what is essential and what is not. This could be a difficult process as you may be forced to throw away items that hold sentimental value, or things you would simply rather not part with.

Measuring out your new home is a clever way to know what space you’re working with, and helps you set clear boundaries regarding the number of things you decide to keep.

During times of indecision, be as unforgiving as you can and limit the number of exceptions you make when choosing to keep something. It can help to consider your new lifestyle and how you plan to spend your time, using this as a barometer for deciding what to hold on to.

Also, to make the task less daunting, you could split your belongings into categories like clothes, books, tools, and kitchenware. Going group-by-group this way could be a useful method to speed up your clear out.

Factor in the emotional side

Moving house from somewhere you may have lived for decades, raised your children, or bought as your first home can be tough for anyone.

Try not to underestimate the emotional impact this can have on your downsizing process. It could make the important decisions that much more difficult when the reality of parting ways with your house comes to fruition.

Being aware of these effects of downsizing can be just as Important as the financial and practical elements.

To help provide clarity during times of emotion, don’t rule out seeking advice from a financial planner. We can help to organise your downsizing venture to make sure things go as smoothly as they can.

Speak to us

If you’d like to find out how we can help you prepare for retirement, please do get in touch with us at Atherton York.

Email or call us on 0208 882 2979 for more information.

Please note

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

Buy-to-let (pure) and commercial mortgages are not regulated by the FCA.

Think carefully before securing other debts against your home.

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