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Once upon a time downsizing was all the rage. It was the supposed tried and tested method to save on housing costs.
However, things are changing. The number of people taking this decision is declining for a whole magnitude of reasons.
Numbers aside, there are pros and cons from a cost perspective, which we will delve into through today’s piece.
How much equity do you own of your existing property?
This is the big question to ask. If you’re still knee-deep in a mortgage, there’s every chance that downsizing isn’t really going to be viable. Sure, you might earn a small profit, but is it enough to get a removal company in, rent a storage unit and deal with all of the other classic moving steps?
As such, understand your loan to value ratio. This is the amount of mortgage you have outstanding, versus your property value. While you may be buoyant because of the recent house price spike, let’s not forget that all properties are feeling this – so it will also mean that you’ll have to pay more for your next one (even though it is smaller). As such, the main metric is how much of the loan you have cleared.
Can you really cope with a smaller home?
This is a tough one. On the one hand, you might think that it makes sense to have a smaller house when the kids have flown the nest. But on the other hand, do you really want to live in a one-bedroom house when you’re used to a four-bedroom one?
It’s a personal decision, but one that has to be made. Weigh up whether you think you could cope in a smaller house. Could you handle having a smaller garden? Could you manage without a spare room when the family do come to visit? Could you get by without a study?
Downsizing is one of those steps that sounds financially superb on first glance, but you need to make your decision having studied the details properly.
Is your area conducive to downsizing?
This is another key question. In some areas, it might make perfect sense to downsize. After all, you might be able to get a three-bedroom house for the price of your current two-bedroom one. However, in other areas, this just isn’t the case.
It pays to look at the local market. See what kind of houses are on the market and get an estimate for how much they would sell for. If you’re in an area where property prices have been static for a while, it’s unlikely that downsizing is going to be the best move.
What are the associated costs?
There are a lot of costs that come with downsizing that you need to factor in. For starters, you’re going to have to pay for a whole host of professional services, from estate agents to solicitors. Then you need to factor in the costs of actually moving, including hiring a removal company and renting a storage unit.
All of these costs need to be added up and factored into your decision. Otherwise, you might find that you’re not actually saving any money at all.