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Should you downsize your home to fund your retirement?

View profile for Nicola Ward
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For many people in the UK their largest financial asset is often their home. Downsizing your home and moving to a smaller property is something which many people consider in later life. In particular, when looking at ways to fund retirement.

Rather than investing in a pension, some people consider relying on their home and potentially downsizing at retirement to provide for their income needs.

Downsizing your property can be a beneficial way of raising additional cash to aid your standard of living when in retirement. However, there are many factors that should be considered when taking a decision to use your home to fund retirement, rather than investing in a pension.

Property prices are currently at an all-time high, despite other areas of the economy struggling with the implications of COVID-19. In addition to this, Stamp Duty Land Tax (SDLT) has been temporarily suspended for properties below £500,000 and mortgage interest rates are relatively low. These factors all indicate that it could be a good time to consider downsizing.

However, it is possible that the impact of the recession is yet to filter into the property market. This could bring further uncertainty and discourage mortgage lenders from offering products to homebuyers. This will  result in a slow-down of the property market affecting house prices and sales in the future.

Of course, nobody can predict what the housing market will do in the future. However, a key risk which will always remain is the fact that you may not get as much cash from downsizing as you expect. 

Industry research has concluded that the average sum released by downsizing is often much lower than expected and, in most cases, insufficient to rely on for retirement. A lump sum figure from selling a property may appear to be a large amount of money, but when converted into an annual income it may not go quite as far as you would hope.

Aside from financial factors there is also the emotional side to consider. Many people may find that once they reach retirement, they do not want to downsize their property as they are attached to their family home. Downsizing may mean moving away from your local area, friends, and family, which can also be a difficult decision to make. Added to the overall stress and costs of moving to a new house, these factors indicate that downsizing may not always be the appropriate decision.

A pension fund will provide much more flexibility for retirement than your property alone, with the ability to take flexible regular or lump sum payments. This means that you can tailor your income to your retirement needs. Whereas relying on downsizing to fund retirement means linking your finances to where you currently live or will live.

Downsizing to release cash may not always be the most appropriate course of action and can be an emotional and complicated decision. 

There is no ‘one size fits all’ approach to retirement planning and what works for one person may not be suitable for another.

Please contact me if you are looking for guidance or advice around planning your retirement arrangements. I can be contacted on 01206 217329 or