Downsizing your home in retirement

If you own a house that’s bigger than you need, selling and moving to a smaller or cheaper property can be one way of raising extra money for your retirement. 

Downsizing might be one of the first things you think about when you want to increase the amount of money you get in retirement. However, there are other options worth considering before you commit to selling your home. Releasing equity in your home or working for longer can also increase the amount of money you have to spend in retirement. 

It’s always a good idea to seek advice before making major financial decisions. 

Find a regulated retirement advisor using our directory.

Even at retirement age, buying a house is a long-term commitment. If you're not sure about your decision, spend some time in the area before you buy can give you the chance to see if a new location or type of property is right for you.  

There are also extra costs to consider when buying rather than renting, such as: 

• stamp duty 

• mortgage fees 

• moving costs 

• estate agent’s, solicitor’s and surveyor’s fees.   

These costs can add up to much more than you would expect, often running into tens of thousands of pounds. You’ll need to make sure what you get from the sale of your current home is enough to cover these costs and your continued living costs. 

Renting can be either less or more expensive in the long run, depending on the area you live in and the rental property itself. You may save money by no longer having to pay for your home’s maintenance costs.  

Renting is less secure than owning your home, however. Your landlord could decide to sell the property or increase the rent and you will no longer be on the property ladder. 

Most people who downsize do so to increase their income in retirement. Smaller houses usually have cheaper bills and lower maintenance costs too.  

Downsizing can benefit your lifestyle as well — you could move closer to friends and family or to an area you like. If your current home is worth more than your calculated expenses, you may have some extra funds to spend doing things you like. 

It’s also an opportunity to live in a different type of home that can allow you to keep your independence for longer. For example, a bungalow, retirement property, or sheltered housing.  

These types of homes can also be: 

• easier to maintain 

• more accessible, for instance by having step-free access 

• a way to get extra help or care as you get older 

• closer to friends and family 

Downsizing might mean you have to give up some of the things you take for granted in your current home. 

Your new home might be:

• smaller, with less space for people to stay over or for your possessions

• further from shops, GP surgeries and leisure facilities. If you think you might have to give up driving in the future, it’s also worth considering how you will visit people and get to the shops.

• further from friends and family

People also tend to overestimate the value of their house and don’t realise how much it will cost to move. You might not raise as much as you think you will from downsizing. Calculating the costs can show you if it’s the right option for you.

Find out how much your current property might be worth. Use an online property valuation guide, such as ZooplaOpens in a new window and check how much similar properties in your area have sold for on RightmoveOpens in a new window 

It’s worth getting three different estate agents to give a valuation. You can see if these valuations are the same as the prices you’ve researched. If the estate agents come back with a different valuation to the prices you’ve found online, ask them to explain why this is. 

Research the cost of the smaller property you want to buy and calculate the cost of moving. Get quotes for all these costs to get a realistic figure. 

It’s also worth looking at how downsizing will affect any inheritance tax on your estate. This will affect the tax your beneficiaries, such as your children, may have to pay when you die. 

The tax-free threshold for inheritance is currently £350,000 but can increase if you leave your home to your children or grandchildren using the Residence nil rate band (RNRB).  

There is also a ‘downsizing addition’, which you can add to the RNRB if you’re concerned that your children or grandchildren will not be able to take advantage of the full tax-free allowance.  

Downsizing is just one way to make sure your income during retirement covers your everyday expenses.  

It’s best to discuss all your options with a financial adviser, who can help you make accurate calculations and discuss all your options for downsizing.