But the benefits of downsizing usually outweigh those tough decisions, as moving to a smaller home can reduce your property maintenance commitments as well as releasing equity from your home, which you can put towards reducing your work hours or helping your children to step onto the property ladder.
What is downsizing?
Downsizing means buying a smaller home than your current one. For homeowners whose children have moved out, downsizing can release vital equity funds to help them to become more financially secure. It also provides an opportunity for homeowners to lead an altogether simpler life.
When should I downsize?
Homeowners generally look to downsize at retirement or when their children have left home and the family home is too big for them.
As it becomes more difficult for younger generations to take their first step on the property ladder, downsizing may also provide an opportunity to help these members of your family afford the considerable deposit for their first home.
However, there is no right or wrong time to downsize - it's all dependent on your circumstances.
Downsizing your house: step by step guide
Assess your current and future needs
When looking at both your current home and a smaller property you may wish to buy, think about your current and future needs. Also think about the practicalities of downsizing. Ask yourself some key questions.
- Do you have mobility problems, or could this occur in the future?
- Do you still need space for relatives to come and stay, or can you manage in a smaller property?
- What property type do you see yourself living in?
But there is no right or wrong time to downsize - it's all dependent on the needs of the household.
Declutter your home
Once you have decided the type of property you want to downsize to or even made an offer on one, it's time to start the painstaking process of deciding which belongings to keep and which to remove.
Work out if your current furniture will fit in a smaller property or if you'll need to purchase new items. Be ruthless, but not so ruthless that you leave yourself short, or missing key items when you move.
One good thing about a mass decluttering session is the benefit it can have for charities. There should be a host of shops in your area happy to take the things you no longer want, some of them will even come and collect bulky items.
Prepare for the emotional impact
If you're downsizing, there's a strong chance you'll be leaving behind a property and items that mean a lot to you. You may have brought your children back to the property for the first time, or got married while living in your home.
Even if you have simply lived there for a long period of time, emotions can rise to the surface when the time comes to leave. Be prepared for the emotions and focus on the happy memories you have and the future you will have at your new home
Pros and cons of downsizing your home
Easier to maintain
Perhaps one of the biggest draws to downsizing is the levels of maintenance you'll need to undertake, both inside and outside their property.
May be cheaper to buy
Generally speaking, smaller properties can be more affordable than larger homes. That said, your location will play a big role in this. If you're savvy, you could pay for your new home outright or reduce your mortgage repayments considerably.
...and cheaper to run
A smaller home should be cheaper to heat which will reduce your utility bills. Your home will carry a smaller carbon footprint too, which is better for the environment.
It can be an adjustment
When you're used to living in multiple rooms located over a considerable square footage, it can be tricky to get used to less space. This is especially true if you live with a partner or have larger pets like dogs.
You may need to compromise
It can be tricky to find a new home that suits your every need; it's likely you'll have to compromise on somethings on your wishlist. Ask yourself: do you have your heart set on a detached bungalow or would a ground floor apartment work just as well?
What is equity release?
If you decide that downsizing is not for you, you could consider an equity release mortgage. These mortgages mean you can stay in your current property, but release some of the money in your home.
After the house is sold, usually in the case of the homeowner's death, the lender gets back the monetary value of their share of the property.
Types of equity release mortgages
There are generally two types of equity release mortgage:
A lifetime mortgage
The lifetime mortgage means no monthly repayments post retirement as the interest from the loan and the loan itself is payable on death or when the property is sold.
A home reversion plan
A home reversion plan sees you sell all or a percentage of your home in return for a tax free sum or regular income to boost your pension.
When is equity release is a good choice for you
It's important to carefully evaluate your financial situation and understand the implications before deciding if equity release is right for you.
That said, if you are 55 or over and would like to remain in your current home while releasing funds to help your children or grandchildren step onto the property ladder, it may be a good choice for you.
Whatever you decide to do, speak to a financial advisor before taking out any plan like this.
Pros and cons of equity release
You'll have extra money
An equity release mortgage can provide ready access to funds, offering you the flexibility to help younger members of your family to buy their first home. Conversely, you may decide to put the money towards a retirement fund, helping you to leave work early or reduce your working hours.
Technically, equity release is a loan so the money you receive from it is tax free. That said, the things you put the money towards may be subject to taxation.
You may not incur inheritance tax
If the loan from equity release reduces the value of your home to below the £325,000 threshold set by the Government, your estate may be exempt from inheritance tax.
Your estate may be devalued
Equity release can reduce the value of your estate, which means there may be less to pass on to your heirs. If leaving an inheritance is important to you, it's essential to discuss this with your family and understand the potential implications.
If this is a real concern, inheritance protection insurance may be a good option as it allows you to ring-fence a proportion of the equity to pass on.
It may affect any benefits you receive
Equity release may impact your eligibility for means-tested benefits, so it's important to be aware of any potential consequences to your income.
Some equity release schemes also carry fees so it's important to factor these costs into your final decision.