Downsizing vs. Equity Release
Why downsizing is outdated and why rightsizing is a good idea
Living in a large family home may have been a good idea when you had a large family, but as you get older, the advantages of all that space soon become outweighed by the disadvantages of large bills and the sheer effort needed to clean and maintain a large property.
This is why nearly 4 million homeowners over 55 plan to downsize or rightsize, according to The Prudential, with a report by retirement property developers, McCarthy and Stone putting the figure even higher at 5.7 million.
There are many different reasons for choosing to rightsize your home, and a few hurdles that are stopping people from making the move. In this article, we will take a look at everything you have to gain and how to overcome some of the hurdles.
Rightsizing not downsizing
Rather than calling this move downsizing, which has so many negative connotations, many of those on the move prefer to think of it as rightsizing. Moving to a home that is the right size for their needs as they enter the next phase of their lives. A home that involves the right sized amount of upkeep and has rightsized bills now that their income is reducing.
Watch Now: The Benefits of Rightsizing
Releasing capital from your home
One of the main attractions of rightsizing is to release capital from your home to fund your retirement. It’s all very well owning a large home worth a lot of money, but that won’t pay your bills or give you the financial freedom you want in retirement. Being asset rich and cash poor will usually only benefit your children when you pass away, which is why some people call downsizing ‘ski-ing’ which stands for Spending the Kids Inheritance!
According to the Prudential report, the average lump sum released by rightsizing is around £112,000, with 11% of sellers expecting to make £200,000. Their survey also found that 13% of people felt they couldn’t afford to retire without this cash injection.
The extra cash can be used as a cushion to support retirement finances and supplement pension income, although almost half of those surveyed planned to use the money for travelling and other retirement fun.
Reduced monthly bills
Another significant attraction of rightsizing is to reduce monthly bills. By selling a large home you will not only get more money in, you will also have to pay less money out. OVO Energy estimate that the energy bills for a small house or flat will be just two thirds of that of a medium house and less than half of the bills for a large house. This could mean savings of around £800-£1000 per year.
Rightsizers will also save on other regular expenses such as council tax, buildings and contents insurance and general maintenance, while any remaining mortgage repayments will also be much lower.
Despite all the fiscal benefits, finances are not the main reason behind the decision to rightsize according to the Prudential, with two thirds of those surveyed citing convenience as their main motivator. Rightsizing can often involve right-siting, moving to a location that is more suited to your lifestyle, both now and in the future.
Rightsizing could mean moving to somewhere with better transport, or closer local services, so you are not as dependant on your car as driving becomes harder and more expensive. It could mean moving closer to friends and family, making it easier to see your grandchildren. Or it could simply mean moving more into the local community, or even a specialist retirement village, to avoid isolation as you get older.
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Rightsizing to do the right thing
For the more ethically-minded, rightsizing simply feels like the right thing to do. McCarthy and Stone estimate that no fewer than 2.8 million extra bedrooms could be freed up if everyone lived in a rightsized home. Many older people are simply not comfortable with occupying large family homes that they don’t need, especially when there is a shortage of such homes for families who do need them.
Another moral motivation is the carbon footprint of a larger home. Some people think that it is not right to waste energy and create pollution by heating rooms they do not need, and want to rightsize to reduce their carbon footprint.
Rightsizing for a simpler life
With much less cleaning, decorating and gardening to do, a rightsized home can free up time to enjoy life in your retirement. Why carry the burden of a big house that you don’t need when rightsizing can give you the time and the money to do other things?
Rightsizing can also be a great opportunity to clear out stuff that you have accumulated over the years that you simply don’t need. With less rooms and less storage, you will be forced to decide what is really important to you and what is just junk. Not only will this streamline your life and declutter your home, it will also make it easier for your children to clear your home when the time comes.
Not just for the over 55s
Of course, rightsizing is not just for the over 55s. You can rightsize earlier in life to release capital for other reasons. For example, if your kids are off to university, rightsizing can help towards the cost of tuition fees and maintenance now that you don’t need a room for them at home.
Right sizing can also help with financial difficulties, clearing outstanding debts and giving you a fresh start in a home you can afford. This may seem like an extreme solution, but there is no point suffering the stress of money worries if you are sitting in a house that could solve those problems for you.
Rightsizing vs. equity release
An alternative to rightsizing is equity release. This is a way of cashing in on some of the value of your home, while still being allowed to live there. The problem is that equity release can be much more costly than you expect, with compound interest rates soon meaning you owe a great deal more than you borrowed. You are guaranteed to never owe more than your home is worth, but in many cases, there will be absolutely nothing left for your children when you pass away.
With rightsizing, you can access the value of your home without paying any interest, and still reinvest some of that in a new place to live that you can leave behind in your will.
When is the right time to rightsize?
There is no set time that is best for rightsizing, but there are a number of triggers that could make it the right time for you, such as retirement, the last of your children setting up in a home of their own, the birth of grandchildren or a change in your health.
There is no point in waiting for the ‘right’ market conditions, because any extra you make in selling your current home will simply go on a higher price for your new one.
One thing that is worth considering, however, is the availability of suitable smaller homes for older people. The Office for National Statistics says that the number of over-65s is projected to grow twice as fast as the working population over the next ten years, with the McCarthy and Stone report predicting the number of rightsizers will rise from 5.7million to 11million by 2036. There is already insufficient retirement housing to meet demand, so waiting another five or ten years might not be advisable.
No time to waste
Every month that you stay in your oversized, underused home costs you more money and puts your dream retirement lifestyle back. None of us know what the future holds for our health and wellbeing, so it makes sense to start your new life now to get the very most out of your retirement while you are healthy enough to enjoy travelling, fit enough to play with your grandchildren and free to make your own choices, rather than be forced by circumstances.
That’s where prompt professional purchasing companies like Yes! Homebuyers can really help. Their convenient service takes away all the uncertainties of selling your home, making it easier to fast forward to your new life.
A simpler sale
In their fascinating report, Understanding Downsizing, the Intergenerational Foundation found that despite all the advantages of rightsizing your home, one of the major barriers was the hassle of selling. The report cites a ‘lack of desire to put in the degree of effort needed to make such a move’.
Yes! Homebuyers can take away all of that effort with a streamlined service available on almost any property. You won’t need to fund any work on your home to bring it up to a sellable standard, you won’t have to endure endless viewers picking holes in your property and you won’t face the disappointment of endless price reductions and extra costs along the way. What’s more, with Yes! Homebuyers there are no estate agent’s fees for selling your house to pay and they will cover all of your legal fees.
You may not get the same amount as you would on the open market, but you will be able to move on with the next part of your life without delay, leaving you free to choose the right home and arrange the lifestyle you’ve been working so hard for all your life.