What should I consider when I am downsizing my property?

NOTE: This post is more than 12 months old, and the information contained within may no longer be accurate.

Downsizing is a situation many clients will face as they move from one phase of life to another.  Once we have increased the size of our home over the years, filled it with furniture, children, pets and boxes from Amazon Prime, we then find that the reverse starts to happen.  We go from almost outgrowing our homes, to finding that it is now too large, too expensive to run, takes a long time to heat up in the winter and perhaps, if the children have flown the nest, it is likely to feel empty (despite having a lot more free time).

The first step is deciding what is right for you moving forwards if you have decided your current property is not the place you want to continue to live.  It is important to know whether you are downsizing for the purpose of generating an income for retirement, or if you would like reduce your expenditure in order to spend more money on the  ‘finer things’ as you head towards retirement. The cost of a studio apartment in the centre of London, may well equate to a large suburban property.

There will be initial fees and costs for purchasing and selling a property; for example- estate agent fees, surveyors, any remedial work that needs to be completed on your home in order to get it up to spec. relocation costs, storage costs, solicitor fees and the largest of all, negotiating on the price of both the home you wish to sell and the home you wish to buy.  The home you purchase will be subject to the Stamp Duty Land Tax Rules https://www.gov.uk/stamp-duty-land-tax/residential-property-rates.

So that you do not fall into the trap of believing that once you downsize your property you will be set for life, it is important to ask yourself a number of questions…

Have you got a Strategy? Plan out the exact costs of a house move from start to finish and give yourself leeway of around 5% each way.  This means that you will have a good idea of what the entire cost of the process will be, from conception of the downsizing idea, right the way through to your completed new home and any additional expenditure it comes with.

Have you thought about the Tax implications?  Stamp Duty Land Tax or even Capital Gains Tax, if the property your selling is not your primary residence, will have an impact on the residual funds from the property sale.  Ensure you have factored this into the overall costs.

Have you thought about Renovation? While we may be moving into a new home or a home that has recently been refurbished, creating your own decorative impression on a property can cost money, so it is important to factor this in when budgeting and deciding on your ‘forever home.’

Have you worked out your Income? If you are hoping for equity in your property to provide you with an income in retirement, what is the difference between purchase price (plus fees and costs) less the sale of your home (plus fees and costs). This may reduce any profit and potential income you will have in retirement.

Where will the Kids stay? Will your children (who have flown the nest) be coming back and how often? Will you be moving further away from friends, who may want to stay over when they come to visit you.  Would you have enough space for any potential grandchildren?

Have you Examined everything? If you are fortunate enough to be releasing more capital than you require from your home, is there a plan to make the money work for you over the long term, instead of it sitting in a low interest rate account and effectively being eroded by inflation (in real terms).

Moving to a new house can be a stressful time and speaking with a financial planner during the process can help you to understand whether you are doing the right thing. At Wingate Financial Planning we will first listen and try to understand your situation. Please get in touch if you would like to hear more about how we can help.

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26 Apr 2024

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