I quit my corporate job after ‘downsizing’ and got £1,150 free cash too – how to decide if it’s right for you

WORRIED about funding their retirement, Anna Wallace and Graham Reagan were rattling around a four-bed house before downsizing and saving £1,200 a month on their mortgage.

The move will also allow them to pocket £50,000 to put into Graham’s pension.

Alamy

We investigate the pros and cons of moving to a smaller, cheaper property — and how barriers are stalling the housing market[/caption]

More than 460,000 homeowners are expected to downsize this year, according to estate agents Hamptons.

This week Samantha Partington investigates the pros and cons of moving to a smaller, cheaper property — and how barriers are stalling the housing market.

Should you downsize?

ON average, those who downsize buy a property that is £139,000 cheaper, according to figures from removals comparison site reallymoving.com.

If you are mortgage-free, you pocket this amount, known as equity, and can use it for your next home purchase. The amount of equity you can expect varies from area to area. On average, homeowners in Yorkshire and the Humber bank £167,000, downsizing from a home worth £442,000 to one priced at £275,000.

Those living in the East Midlands can expect to bank less than half that amount at £81,000.

If you have a mortgage to repay, your equity is what you have got left after paying back your debt.

Such sizeable sums can be used to support income into retirement, fund a change of lifestyle or gift an early inheritance to family members.

For some, downsizing is a necessity because a large home with spacious garden is difficult and costly to maintain and heat.

Others face paying a mortgage into retirement that will put their finances under strain. Downsizing allows them to repay or reduce the debt early.

Stuart Matthews, managing director of North West estate agent Miller Metcalfe, is helping six families to downsize.

He says they have been compelled to move by the increased cost of living and higher interest rates.

He added: “A lot of downsizers were on mortgage rates of sub two per cent. When their deals come to an end and they have to pay between four and five per cent it’s making people think twice about that cost.”

Barriers to downsizing

MOVING costs, such as stamp duty and estate agent and legal fees, can make it impossible for some homeowners to move.

Estate agents can charge between one and 1.5 per cent of your sale price, while legal fees for buying and selling can, on average, cost between £1,100 and £2,100 or much more for high-value homes.

But the biggest cost by far is stamp duty, paid by buyers on home purchases over £250,000.

First-time buyers receive an exemption up to £425,000, but this is expected to reduce to £300,000 next April. Downsizers pay an average stamp duty of £5,000, according to reallymoving. com, but those in the South East and London pay between £8,736 and £15,972.

With Labour’s first Budget, due this autumn, many would like to see the tax scrapped or modified for downsizers.

Leon Diamond, chief executive of LiveMore, a mortgage lender for the over-50s, said: “Stamp duty is a big blocker. If downsizers didn’t have to pay so much, they would be able to move to a smaller place, freeing up housing stock for families desperate to climb up the housing ladder.”

Mortgage-free?

SOME downsizers still need a small mortgage when they move so they can also pocket a decent amount of cash.

But older borrowers are often shunned by high street lenders, preventing them from downsizing or putting them off even trying.

Research from LiveMore found that only four per cent of people aged over 50 believe they would be able to take out a new mortgage. This drops to two per cent for those aged over 80.

But do not assume you can not get a mortgage. Speak to a mortgage broker first.

There are less-well-known lenders that consider older borrowers on pension income.

Free advice

NON-PROFIT organisation Independent Age offers free support on downsizing. Call 0800 319 6789 or visit independentage.org.

Age UK’s advice line (0800 169 65 65) is a free resource for anyone who wants to check if means-tested benefits will be affected by downsizing.

And a fee-free mortgage broker can check your circumstances to see if downsizing is the best option for you, or if equity release would be more suitable.

‘Saving let me semi-retire and enjoy art’

Ian Scammell

IT worker Archana Nehra, 57, spent two years looking for the right new-build to downsize to[/caption]

ARCHANA NEHRA was sick of paying for the upkeep of her two-bedroom 1930s maisonette and was ready for a change of lifestyle.

So the 57-year-old IT worker spent two years looking for the right new-build to downsize to.

After selling her apartment in Romford, East London, for £325,000, Archana rented a studio flat nearby while she scoured developments for a new apartment.

She eventually found a one-bedroom apartment on a Bellway development in Hornchurch, close to the town’s facilities and country park.

Ian Scammell

After selling her apartment in Romford, East London, for £325,000, Archana paid £273,000, with a much smaller mortgage, for her newbuild home[/caption]

“Moving here has changed the quality of my life,” said Archana, who semi-retired after her move.

She has since set up art and greeting card business ANehraArts. She said: “Before, I was worried about my health, finances and the upkeep of the maisonette, and I had neighbours from hell, so it was like a perfect storm.

“Moving into a nicer, newer build was the right thing to do at that time.”

She paid £273,000, with a much smaller mortgage, and Bellway paid her £1,150 stamp duty as an incentive. She has lower bills and is saving £200 a month.

She added: “I feel free from having a large mortgage and a large house. That gives me a lot of flexibility to work on my art, my passion, my hobby.”