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.
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.
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.”
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.”
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.
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.
WORRIED about how they would afford their retirement – and with rising interest rates and an empty nest – Anna Wallace and Graham Reagan knew it was time to downsize.
“We were wandering about in a four-bedroom Georgian terrace thinking we need to think about moving somewhere smaller,” said Anna, 55, a celebrant and education adviser.
“And with interest rates going up, it made sense to start to look.”
But the couple, from Malton, North Yorks, assumed they would be turned down for the mortgage they needed to move.
After doing some research, Anna found specialist lender LiveMore, which offered her a deal.
The couple had been paying £1,986 a month on their mortgage lender’s variable rate after their fixed rate ended 18 months ago.
In four weeks, Anna and Graham, 63, an assistant head teacher, will move into a three-bedroom terrace, 25 miles away, with a much smaller mortgage of £706 a month.
They sold their home for £350,000 and paid off their mortgage of £226,000. Their new home cost £160,000 and they won’t need to pay stamp duty on it. They used £64,000 of the equity from their house sale and took out a mortgage for the remaining £96,000, which leaves them with £60,000 spare.
They are using £50,000 of that to bolster Graham’s pension so he can retire early.
Without the maintenance, cleaning and cost of having a bigger home, the couple will also have more time for each other and their dogs Lola and Clemmie.
“It will massively change our quality of life,” said Graham.
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.
“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.”
STAMP DUTY: If you want buy a new-build, shop around to find out which builders are offering to pay your stamp duty, a common incentive when sales are quiet. Or, hunt for a home priced under £250,000 which will make you exempt from the tax.
ESTATE AGENT FEES: Some online firms, such as Purplebricks or new platform Hiizzy, offer a free or cheap service for sellers who are happy to host their own viewings, take photos and chat directly with buyers. Others, such as Yopa, offer sellers a fixed fee option, starting from £999 with a range of agent services.
MORTGAGE & SURVEY FEES: Lots of mortgage brokers do not charge to share independent advice on what is available. Search online for a fee-free broker. They will also know which lenders offer free valuations.
LEGAL FEES: It is not advisable to just go for the cheapest solicitor you can find but you can still make sure you are getting the best deal. Get a minimum of three quotes and be sure to check reviews before instructing them.
