The financial side of downsizing

We go from outgrowing our homes, to suddenly finding that they are too large. We may have spent years filling it with furniture, children, pets and memories, but when the children have flown the nest, it can all start to feel a burden. 

There may be higher maintenance costs with a larger home, and of course, there will be possibly higher energy costs too. With those costs rising, we can start to see the advantages of a home that is smaller, more manageable and which will cost less to run.

But what are the financial factors of downsizing?

The positive side of getting smaller

It is easy to see the financial advantages of downsizing to a smaller home. Lower council tax and may be smaller energy bills are only the beginning. You might also have less to maintain, fewer rooms to furnish and less housework to do.

There could be an immediate decrease in the costs you need to cover, but the real savings will be longer term. As you grow older, you may feel even less keen on DIY repairs and general cleaning. A smaller home will save time and effort as well as money, and if you are looking to make your downsized home your final one, it makes sense to find a place that will stay easy to look after.

You may want to think about such things as stairs and access. If mobility were to become a problem, downsizing to a bungalow might make sense.

The negatives

Of course, there are some negative sides to downsizing. There will be initial fees and costs for purchasing and selling a property. Estate agent fees, surveyors, any remedial work that needs to be completed on your current home in order to get it up a sellable state.  There will be a solicitor to brief and pay for. There will be costs of the move itself, and the cost of buying your new home which may be inflated by the stamp duty land tax fees. 

These can be substantial in many parts of the country where property costs are already high. 

You will also need to think about redecorating your new property, and probably some new furniture to make it into a home.

The financial bonus

But even though there will inevitably be some costs to cover, you may be looking at a sizable financial bonus from downsizing.

UK property prices currently remain high and selling a large family home could mean you are potentially releasing a large amount of equity that you have built up over the years.

If you have not already paid off your mortgage you may be able to do so, and still have sufficient wealth left over to buy your new home outright.

But you should look at ensuring that you make any cash gain your home has earned for you works as hard as it can for you.

As with most aspect of finances, careful planning is important when you are downsizing.

To start with you need to ensure that it is you and not the taxman who will be enjoying the money. Capital Gains Tax may be an issue if the property you are selling is not your primary residence. It will have an impact on the residual funds from the property sale.  Ensure you have factored this into the overall costs.

You also need to decide how you will use any cash your move has made you. A large cash sum is too valuable to be left as savings in a bank, where inflation will eat away ats its value. You probably need to think about investing, and potentially let your extra wealth make a real and ongoing contribution to your retirement income. 

Getting some expert help

At Continuum we can give you the support you need at every stage. We can help you look at a mortgage if you still need one. We can help you ensure that your downsizing is as tax efficient as possible, which could mean saving thousands from the taxman’s clutches.

And perhaps most important of all we can help your newly released wealth work harder, with an investment plan that works around your resources, timescale and needs.

To find out more, contact us today.

Equity investments do not afford the same capital security as deposit accounts. When investing your capital is at risk.

Levels and bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor.  

Your home may be repossessed if you do not keep up repayments on your mortgage. 

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable mortgage product, you should seek independent financial advice before embarking on any course of action.

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