Should you downsize?

We look at the pros and cons of downsizing to a smaller home, or to a different type of home such as sheltered accommodation or a retirement village.

What is downsizing?

Put simply, downsizing is the process of moving into a smaller property. You might be considering taking this step for a variety of reasons - it could be to boost your finances, reduce your expenses, help you pay for care, or to move into a more suitable home or a better location.

Here we look at the pros and cons of downsizing and some reasons you may consider it.

The pros of downsizing

The decision to downsize can be a tough one, especially when you've built up many fond memories associated with your family home, but there are also distinct benefits to make the move worthwhile.

There are many reasons why people may choose to move home in later life. It may be they want to live somewhere different or closer to family. Or perhaps a recent (and possibly unforeseen) change in circumstance, such as a health issue or bereavement, has caused them to reconsider their living arrangements.

If you're in any of these situations, it may be time to consider the three main benefits of property downsizing.

1. An opportunity to move into a property that is easier to manage, helping you to maintain independent living.
2. A chance to move to a more favourable location, perhaps nearer to your family and friends.
3. A potential way to raise money by selling your home and moving to a less expensive property, perhaps also with lower bills and maintenance costs.

In most cases, smaller properties are also cheaper to run. As a downsizer, you can generally expect lower council tax and energy bills. Maintenance and repair costs are also likely to be lower, particularly if moving into a more recently built home.?

It's also a lot easier to keep on top of household tasks in a smaller property, which can be a huge bonus if you've been struggling to manage your current home.

Cons of downsizing

While downsizing can be a great option for many people, it may not be right for you at the moment. Weigh up whether any of the following drawbacks might affect you.

• Leaving friends and neighbours behind: a move closer to family may sound like a good idea, but if you already have a strong network of friends and neighbours, you could end up with less day-to-day social contact than you have at the moment. This may also put more responsibility on your friends or family to do more for you than you feel comfortable with.
• Lifestyle changes: if you're considering moving to an entirely new area, can it offer everything you need to continue living a fulfilled life? Make sure you research the local area, and if you have any hobbies that are important to you, be sure you can continue them in this area.
• Who are you moving for??Do you feel pressured by relatives to make a move? While their intentions are good, make sure the move is right for you, too. If you still feel happy and confident living in your current home, it may be a good idea to explain to them that you aren't ready to consider downsizing just yet.
• A smaller home means less space: while this can be an advantage, it's useful to think ahead about how much space you might need for hobbies and accommodating family or visitors, for example.

Common reasons to consider downsizing

Downsizing for financial gain

Many retired homeowners see themselves as asset-rich but cash-poor: they own a property, but live off a small regular income, such as a pension. Downsizing to a less expensive property can be a way to raise money, which could be used to supplement your pension, pay off your mortgage or a loan, or spend on holidays or a new car.

Property prices vary enormously, based on a wide range of factors, so carry out your own research thoroughly before deciding to sell a property.  

Sometimes the term 'releasing equity' is used to describe the process of making money from selling an existing home and buying a new home at a lower price. However, this is misleading. Releasing equity means holding on to the current property and borrowing against its value.  

Changes in health or mobility

Even minor changes in health or mobility can affect day-to-day life. You may be finding it more difficult to move around or get in and out of your home, particularly if there are stairs or external steps. If this is the case, you might be more comfortable in a bungalow, ground-floor apartment or mobile home.

If you've recently had to stop driving, it can become much more difficult to get around your area, and can also affect your social life and your day-to-day needs. In this case, it may be worth relocating to an area where friends and amenities are in walking distance, or are more easily accessible by local public transport.

Loneliness or isolation

Coping with bereavement is very difficult thing at any stage of life, but it can be especially distressing if you've lost your partner, especially if they were your only regular company. If your friends or family used to live nearby but have now moved, this can also lead to feelings of loneliness or isolation.

In these circumstances, a new home can feel like a new start, particularly if you move to an area where friends or family are nearby, or where there is the potential to meet and socialise with people of your own age.

Downsizing checklist

Whether you're downsizing to a smaller home, a?retirement village?or?sheltered housing, thinking about the new surroundings is crucial.?

Getting around

• Is there good public transport in the new area, and is it easily accessible?
• Can your friends and family easily get to the area?
• Are there good shops, a library, cafes and other amenities you need nearby?
• How far away is the nearest doctor's surgery?
• Is there a private parking space or adequate parking on the street, for you or visitors?

The new neighbourhood

• Does the area seem quiet and peaceful?
• Are there other people of a similar age in the immediate neighbourhood?
• Are there activities in the local area that match your particular interests?
• Are there any plans for major changes or developments, such as building works, in the area?
• Does the local council have a good reputation for delivering services in the area, such as rubbish collection, as well as services specific to older people?
• What are the local GP surgeries and hospitals like?  
• Do any charities or social businesses provide services to older people in the area?

Feeling safe

• Does the area feel safe? What are the local crime statistics like??
• Is the building well secured?
• Are there suitable locks on all the external doors and windows?
• Is there a burglar alarm?
• Is the property fitted with a smoke alarm and carbon monoxide detector?

Consider all the options

Whether you're a homeowner, private tenant or living in council or housing association accommodation, there are a number of downsizing options.

Staying on the property ladder

Owning your own home brings a sense of security, which is why most downsizers choose to remain on the property ladder. Of course, buying is a long-term commitment. For this reason, if there are uncertainties about any aspects of the move - for example, the area is unfamiliar - it may be an advantage to rent in that area first, to get a feeling for it.

If staying on the property ladder is definitely the right option - and this can apply to buying a home in?sheltered housing?or a?retirement village?just as well as a more traditional purchase - all the usual steps and processes of buying a home will apply.  

Renting a property

Renting has the advantage of allowing you to try out a new location or a different size or style of home before making longer-term commitments.?

New rental agreements are usually fixed for an initial term of six or 12 months. After this, you may decide to leave or to stay on in the rented accommodation for a longer period (provided the landlord had not made other plans for the property).  

Retirement villages

Retirement villages are a popular way for older people to downsize. These purpose-built property developments are aimed at older people who want to enjoy an independent lifestyle in a safe environment, among people of a similar age. Most offer high-quality facilities in an attractive environment.

Accessible homes

These are residential properties that meet a number of easy-access criteria, such as step-free access from street to property and ground-level access to a toilet or bathroom. The Accessible Property Register (accessible-property.org) gives plenty of additional information about accessible homes, and also lists a wide range of homes that meet the criteria and are available to buy or rent.

Schemes for council tenants?

If you live in council or housing association property, there may be one or more schemes available to help (and encourage) downsizing.

• Cash incentives are sometimes offered by councils and housing associations to encourage tenants to downsize into smaller homes to free up larger properties for families.?
• Housing exchange schemes allow council or housing association tenants to swap their homes.
• Seaside & Country Homes?schemes are sometimes offered to council or housing association tenants over 55 years of age who are currently living in London and wish to relocate away from the capital.

Downsizing and inheritance tax

In 2022-23 the standard inheritance tax (IHT) allowance is £325,000. This is known as the nil-rate band. It means that no IHT is charged on the first £325,000 that you leave to your heirs. If you own your own home and leave it to a direct descendant, your estate can also benefit from an extra IHT allowance, known as the residence nil rate band (RNRB). This is an additional tax-free allowance of up £175,000 in 2023-23.

You might worry that by downsizing to a less valuable home, your heirs could lose out on some or all of this extra tax-free allowance. However, in cases such as this a 'downsizing addition' can be applied, which means your estate can benefit from the full RNRB even when you have downsized or disposed of your property before death. The rules are complex, however, and a number of conditions must be met before an estate will qualify?