DARE TO DOWNSIZE

If you lost a large amount of weight, you wouldn’t think twice about buying new clothes with a better fit – but many empty nesters keep holding on to homes they rattle around in. Kay Hill looks at the financial benefits of downsizing

There are many reasons why it’s hard to part with a family home after the children have flown – nostalgia, too much stuff, not being able to face the upheaval, and, of course, the desire to preserve wealth for future generations. Yet there can come a point when having a home that is too big becomes a millstone that stops you from doing the things you enjoy right here and now.

If you are struggling to keep up with cleaning, gardening, heating, and council tax on your home, while simultaneously saying “no” to eating out and weekends away, then a new report by Pensionbee (pensionbee.com/downsizing) might encourage you to consider whether a smaller property might result in a happier lifestyle.

For each of the UK’s most populated towns and cities, the pension company took the average asking price of a one, two, three, four and five bedroom property and calculated the price difference between each (the difference between five and four bed, four and three bed and so on) and also took an average of these four saving figures.

Unsurprisingly, the more expensive the house prices are on average, the more money you could release by downsizing. Londoners would see the largest saving – moving from a five bedroom to a four bedroom home would save you £752,661, moving from a two bedroom to a one bedroom would save £249,299, with an average saving across the board of £417,881 for downsizing by a single bedroom. In contrast, the smallest saving was found in Kingston Upon Hill, where the average saving for losing a bedroom is a more modest £35,775.

The second-largest savings to be had were in Brighton and Hove, where the reward for downsizing by a single room came in at £156,636, while in Bristol it would be £148,609. Savings of more than £100,000 could also be made in Bolton, Bournemouth, Aberdeen, Edinburgh, Leeds, Sheffield, Portsmouth, Manchester, and Cardiff.

The report also enables you to work out easily how much you could save on a bigger move. Swapping a five bedroom London home for a two bedroom one, for example, would put £1.422,225 back in your pocket! You might also want to factor in the fact that you would be saving in council tax and utility bills, which can be considerable. For example, a Band H home in Kingston upon Thames costs £3,800 a year in council tax, compared with £1,689 for a more modest Band C property.

It’s also worth noting that moving house is going to be cheaper for the rest of the financial year due to the Government’s Stamp Duty holiday, which could save you £15,000 on buying a £500,000 house.  Romi Savova, CEO at PensionBee comments, “Our research shows the considerable amount of money that could be tied up in your home. Given the Stamp Duty holiday, there’s arguably been no better time to downsize, especially if you’re approaching retirement and looking to grow your income. Increasing evidence suggests that the majority of us aren’t saving enough for retirement, and where it might not be possible to make larger pension contributions, property can help bridge the gap. As our data indicates, downsizing could release a significant sum, right across the UK, so it’s something that could be worth considering if you want to boost your retirement fund.”

You can pay as much as you like into your pension, but you can only get tax relief on pension contributions up to £40,000 or 100% of your salary (whichever is lower), and if you are already drawing any kind of pension that amount will be lower still. If you pay in more than this annual allowance you will also have to pay tax on it, although you may be able to make use of allowances from previous years that haven’t been used (you can find out more at (pensionsadvisoryservice.org.uk). In any event, it’s important to speak to your pension company or an independent financial adviser if you are considering downsizing to fund a pension plan to make sure you do it as tax-efficiently as possible. 

You might also consider investing some of it back in property in the form of buy-to-let investment. That might sound counter-intuitive, but you will experience all the capital growth you enjoyed while the money was invested in your own home, while also having a monthly income. Again, there are practical and financial implications, so seek professional advice.

Finally, there’s always the “skiing” option – Spending the Kids’ Inheritance. It’s your money, and you shouldn’t feel guilty about enjoying the fruits of your labour (although probably best to wait a bit longer before splurging it all on a round-the-world cruise!)