Opinion: How to avoid the emotional wrench of downsizing

Senior couple moving house with moving van and boxes

Many people choose to downsize in retirement - but does it always make financial sense? - Credit: Getty Images

There are plenty of property-related processes which are relatively easy to propose but considerably more difficult to execute; high on this list is the suggestion to downsize.

Arithmetic often drives a burgeoning interest in downsizing, the maths deemed worthy of further consideration by millions of people who were repaying their mortgages as their home’s value simultaneously soared. Today, a steady appreciation in property values over several decades has ensured that a significant number of former mortgage holders are now sat on a small fortune.

Land Registry figures show that between 1985 and 2020, average property values rose by 783%. Some periods have witnessed more concentrated growth. The Halifax, for instance, estimate that between 1985-90, property values increased by 109%, while the 20-year period to 2021 saw average appreciation of 207%.

Terracotta model of a house on a stack of coins showing increasing house prices

A steady appreciation in property values over several decades has ensured that a significant number of former mortgage holders are now sat on a small fortune - Credit: Getty Images

Economists maintain that whereas rising share prices tend to have little measurable impact upon consumer spending, there is much stronger evidence that steadily increasing property values have a directly correlated effect upon consumption. In short, rising property values make us feel richer which is perhaps why, initially at least, the suggestion to move to a smaller place appears to make sense. Why not sell for £x, buy a smaller home for £y and bank £z? Sounds simple, doesn’t it?

Moreover, the financial argument can rapidly gain traction when supplemented with assumptions such as: the smaller home will be easier to maintain; it’ll be cheaper to heat; utility and council tax bills will be lower, etc. But hold on a moment.

Tired Senior Adult Couple Resting on Couch with Cups of Coffee Surrounded with Moving Boxes.

Many people choose to downsize because they assume it will make better financial sense - Credit: Getty Images/iStockphoto

Several important downsize-related assumptions warrant much closer attention.

For example, finding a new, smaller property in, or close to, the local area into which the would-be downsizers wish to move is no given and may not become available within a convenient timeframe. Granted, the family home may sell quickly, but this could force the owners into expensive rented accommodation for a prolonged period.

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Second, property traditionally more suited to would-be downsizers, such as bungalows or apartments, invariably carry a price premium. Once Stamp Duty, survey costs, legal expenses, estate agency fees and moving costs are taken into account, the remaining balance, once the smaller property has been bought, might be considerably lower than originally anticipated. And where to invest it?

Yet perhaps the most persuasive factor which determines whether folks will downsize has nothing to do with money. For many people, it becomes apparent that perhaps the greatest disadvantage of downsizing is the emotional wrench, especially if they’ve lived in a home for a long time and raised a family there.

Many couples have lived in the same house for virtually the whole of their married life. Their children were probably born and grew up there. School friends regularly stayed over; family birthday parties were hosted in the garden; summer holidays planned in the kitchen; Christmases celebrated in the living room. Thousands of happy memories have significant personal value and it should be noted that while moving to live in a smaller home is an option, it’s not the only one.

Satisfied senior woman holding a glass of wine talking with her grey-haired husband in the garden

Equity release allows people aged 55 and over to remain in homes already full to the brim with love and happy memories - Credit: Getty Images/iStockphoto

Equity release enables homeowners to convert a portion of the equity built up in their property into tax-free cash. The process allows people aged 55 and over to remain in homes already full to the brim with love and happy memories.

Furthermore, as property values have rocketed over the past two years, a potential opportunity exists for homeowners to release the same percentage of equity they could have done in, say, 2019 but receive more tax-free cash, thus taking advantage of surging property prices.

As equity release has become increasingly mainstream and the preferred method by which thousands of people access the often-considerable wealth built up in their homes, the market has reacted accordingly. Nowadays, there are numerous products available which allow homeowners to remain where they are and not subject themselves to a difficult emotional wrench; indeed, it’s even possible to release some equity now with the intention of downsizing at some point in the future.

Prior to doing anything hasty, it’s worth mulling over the advantages and possible disadvantages of both downsizing and equity release because it’s vitally important to have the full facts to hand. Releasing equity is not something people do every day: on the one hand, it can affect their entitlement to means-tested state benefits, but on the other it can also play a massive role in helping ambitious retirement plans become reality.

A qualified adviser can explain equity release in greater detail – which may leave many folks wondering whether there is a need to downsize.