Financial Planning

5 Crucial Tips When Thinking About Downsizing

5 Crucial Tips When Thinking About Downsizing

People think about downsizing for many different reasons. For lots of people approaching 65 and who own their own home, it can be tempting to want to move somewhere smaller and easier for you to manage.

Some people think about downsizing due to financial pressures, such as in the event of a reduced household income to cover a mortgage in the aftermath of a divorce. Certainly, downsizing can be a smart way to release some liquid capital for some people. About £115,000 is a commonly-seen figure for people who downsize (although it could be much more or less).

In any case, downsizing your home is a bit decision and typically irreversible – once your home is sold, it is sold. So you do need to weigh up your options very carefully, and you should think about getting professional financial advice to make sure your decision is based on the best available information and in line with your overall financial plan and goals.

In this article, we’ll be sharing 5 vital things to consider when thinking about downsizing your home. Please note that this content is for information purposes only, and should not be taken as financial advice. To receive tailored, impartial advice concerning your own situation, please speak with an independent financial adviser.


#1 Establish “Why”

As mentioned above, it’s important to be fully confident of your reasons for wanting to downsize so that you can later look back on your decision with confidence, and hopefully no regrets.

It’s important to state that some people think about downsizing because they feel it is their only option. Perhaps they believe they simply cannot afford the mortgage payments anymore, for instance. Whilst sometimes you might be forced to move by circumstances, in many situations it might be possible to stay in your home if you really want to.

For instance, speaking with a financial adviser might open up a strategy to make your mortgage more affordable. Perhaps this could involve remortgaging in order to find you a better deal, with a lower monthly payment. In addition, perhaps your income could be boosted whilst also reducing unnecessary spending, freeing up some extra cash.


#2 Consider “When”

Once your reasons for downsizing have been firmly established, it’s important to then talk to your financial planner about when the best time to do this would be.

This decision needs to be tied carefully into your wider financial plan and timed in a way which accommodates important your personal life events, as well as expected turnaround times (for the downsizing process itself).

This is particularly important if you have children, family or a career which might be impacted by your move elsewhere into a smaller property. If you are approaching retirement, then you will also need to talk to your adviser about whether it is best to move during your final years in work or wait until you have fully entered retirement.


#3 Think about “Where”

Lots of people pursue a downsizing strategy which involves selling an expensive home and then using the equity to buy a new property in a cheaper part of the UK. Sometimes this can result in an outright purchase, which means you could end up living mortgage-free.

This can be a very sensible idea for some people. Yet whilst there might be financial benefits, you need to consider the potential personal and emotional costs. In particular, will you and your partner/spouse still be able to pursue careers in this new area (if you are both still working)? Will you still be near family and friends, and how important is this to you?

If you have children, how will they cope with moving to a new area of the country? If you are retiring, then are you confident that you comfortably adjust to a new temperature, routine, way of life, culture or city/town layout? Will you be close to the services and amenities you need?


#4 Think about “What”

Selling your home, of course, not only involves transferring ownership of your property. It also has a big impact on your possessions.

In particular, will you be able to take your furniture with you into a smaller property? Which possessions are you likely going to need to part with, as part of the whole process?

Will you need to buy any new items or furniture to replace older ones? How much is this likely to cost, and how exactly should you budget for that?


#5 Think about “How”

It is possible to establish fairly strong, personal answers to the above questions in your own head – without necessarily needing to visit a property or speak face-to-face with someone else. However, once you are confident that you want to begin the process, it’s important to have a firm grasp of how the downsizing process works to prepare yourself for what’s coming.

Of particular importance here is getting your head around the financial aspects of downsizing. For instance, have you carefully assessed what your liabilities are likely to be for your new property and built some contingency into those estimates?

Some notable aspects you’ll likely want to think about here include building insurance, your new mortgage, water, gas and electricity bills, ground rent, council tax and various upkeep/service costs (e.g. ongoing maintenance).

Make sure that you fully grasp the charges, fees and taxes you are going to face, too, when selling your home and downsizing to a new one. This can be quite a complex, stressful process for many people where costly mistakes and assumptions can be made.

It is, therefore, often a good idea to speak with an independent financial adviser to help you identify everything you need to know about the process, and plan a strong way forward for yourself based on the best available information.

To speak with a member of our team about your downsizing plans, please get in touch to arrange a free, no-commitment consultation with a financial adviser here at Cedar House.

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