Is downsizing the right ‘move’ for you?

Telegraph Equity Release - A couple holding moving boxes thinking, is downsizing the best option?

Many older people think about downsizing once their children have flown the nest, or once they finish work, particularly if they are looking to free up some of their property wealth to help fund retirement.

Here, we look at the pros and cons of selling up to move to a cheaper property, and explore some of the alternative options which might be available.

When is the best time to downsize?

There’s no right or wrong time to downsize, but people often decide to move when their children have grown up and left home, and they perhaps no longer need a larger property.

Another popular time to downsize is at retirement age, when many people find themselves asset-rich and cash-poor, and so need to free up some extra funds by selling their home and buying a less expensive property.

If you’re trying to work out when to downsize, think carefully about how much you would miss your extra space, as well as when your current home and garden might become unmanageable.

You’ll also need to consider how far away you are prepared to be from family and friends and how much you’ll have once you sell to spend on your new home.

Things to consider

Downsizing is a major upheaval and there are significant costs involved, so it’s essential to factor these in before you make your move.

You’ll not only have to pay estate agency costs for selling your home, but you’ll also have to pay stamp duty on your new home, as well as covering removal costs and legal fees.

These costs, combined with the stress of a move, can be too much for many people, who may want to consider alternatives to downsizing to free up funds from their property.

How equity release could help

If you’d rather stay put in your current home, but need or want to unlock some of the wealth in your property, equity release is one option which could help.

As the name suggests, this type of scheme enables you to release equity from your home, while continuing to live there.

The Equity Release Council, which is the trade body for the equity release sector, showed in its 2019 Spring Market Report that 24,907 new equity release plans were agreed in the second half of January 2018.

A record £3.92 billion of housing wealth was released via equity release schemes in 2019.

How equity release schemes work

The most popular type of equity release plan is a drawdown lifetime mortgage, where you release equity as a single lump sum with a further reserve to access at a later date, and interest on the amount you have released rolls up over time.     

The mortgage plus any interest owed is only repaid to the equity release provider either when you and your partner move, pass away, or go into long-term care. It is possible to port your lifetime mortgage to another property however, subject to your lender’s approval.

Steve Wilkie, managing director at equity release specialists Responsible Life, said: "The equity release market had another fantastic year in 2019. The industry has innovated to appeal to a wider audience and more homeowners are using the equity in their homes for a host of reasons, from supplementing their retirement income, to providing lump sums to pay off mortgages and clearing debts.”

Always seek professional financial advice if you are considering equity release, as it can affect your entitlement to means-tested benefits and will reduce the value of your estate.

By taking money out of your property now, a Lifetime Mortgage may reduce the value of your estate. A Lifetime Mortgage may also affect your entitlement to means-tested benefits, but an adviser can walk you through the impact of this before you decide to proceed. By consolidating your debts into a mortgage you may be required to pay more over the entire term than you would with your existing debt. 

The Telegraph Equity Release Service is provided by Responsible Equity Release. Responsible Equity Release is a trading style of Responsible Life Limited. Responsible Life Limited is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register (https://register.fca.org.uk/) under reference 610205. Only if you choose to proceed and your case completes will Responsible Life Limited charge an advice fee, currently not exceeding £1,490.

The above article was created for Telegraph Financial Solutions, a member of The Telegraph Media Group. For more information on Telegraph Financial Solutions click here.

Information correct at date of publication.