Although many of us we readily acknowledge its existence and importance, ‘emotional cost’ can be a difficult concept to measure.
Truth is, in deciding whether to begin or continue an activity, we tend to fashion a mixture of emotional costs and benefits in an attempt to determine their magnitude. Should the perceived emotional benefits exceed cost, it’s likely that we will pursue a particular activity. If costs exceed benefits, it’s probable we’ll conclude that starting or continuing an activity offers poor returns. Ultimately, however, we’re in the realms of posing questions to which there is not necessarily a right answer.
Which brings us on to downsizing, consideration of which throws up almost as many positives as negatives.
Anecdotal evidence suggests that a large percentage (well over 65%) of homeowners aged 60 and above have considered downsizing at some point. This usually occurs once children have moved out of the family home and thoughts turn to downsizing as a means of releasing capital from the property. For many people, this could prove the ideal option for a number of reasons.
Smaller properties are easier to manage; there’s less cleaning and upkeep involved, while other tasks, such as looking after the garden becomes less of a chore. Moving to a flat ensures that external maintenance is handled by someone else and paid for by residents through a maintenance levy.
Downsizing also offers an opportunity to relocate to a different area that may suit a particular lifestyle better. For example, moving out of a city presents a chance to live somewhere quieter and could offer a slower pace of life, or may mean that you’re closer to friends and family. A move to a retirement property or an area with lots of community activities could offer a chance to nurture a new, more vibrant social life.
Potentially, there are financial benefits to downsizing too. Buying a smaller, cheaper property will release capital from your home for other things, money that can be employed elsewhere: on holidays or helping your children get on the housing ladder. A smaller home should also mean cheaper energy and council tax bills.
However, it’s at this point that we must start taking account of emotional costs.
Selling a home where you may have lived for many years and perhaps raised a family, is likely to be an emotional wrench. Memories associated with the home, usually accumulated over several decades, do not simply fade away overnight.
It’s also worth noting that nowadays, a growing number of younger people live at home until well into their 30s. This begs the question: if the prospect exists of your children wishing to move back in and live with you again, would you regret your decision to move?
Remember too that moving to your preferred new location is a longer-term commitment, prompting the question: what is driving your decision?
Do you yearn for an escape from urban living; do you want to simply get away from it all; or would you prefer the amenities offered by a small town? If your decision is driven by a desire to live closer to family or friends, consider what happens should they decide to move.
Admittedly, we’re all getting older, but it would be prudent to give some attention to a new location’s transport and other facilities and ask whether they will meet your changing needs as you age. Research is an essential prerequisite to downsizing.
One of the biggest disadvantages associated with downsizing is the often unforeseen lifestyle changes. If moving to a smaller property, you will almost certainly have to dispense with some of your possessions and furniture. You may find you have less space for hobbies such as gardening and it’s possible that you won’t have enough room to accommodate overnight or weekend guests.
Moreover, we should not discount the emotional cost of leaving long-standing friends and neighbours behind, while it’s probable that moving from a larger property to a flat will feel quite different, with neighbours in much closer proximity to ‘your space’ than you’ve grown accustomed to over the years.
Then there are the actual costs of moving to a smaller property, hefty expenses from which there is no escape. Let me offer one cautionary example:
Last autumn, a good friend and his wife decided to play their downsizing card and bid farewell to their city-based, but compact, neighbourhood of a dozen good-sized detached homes in a quiet cul-de-sac. After much fruitless searching, they eventually found what they considered the perfect property to which they could move, a smaller, semi-detached house in north Wales.
Not long after they had moved, I met my pal for a beer, a prolonged bout of sport-related talk and what he deemed “the horrendous experience – and cost - of coming face-to-face with legalised theft.”
It transpires that my mate and his wife sold their detached home for £600,000; the estate agents acting on their behalf charged them a selling fee of 0.125% plus VAT once the deal completed, a total of £9,000.
After commissioning a survey at costing £750 plus VAT, ie £900, the couple paid £425,000 for their Welsh home. Legal fees and disbursements were a shade over £3,000. Removal expenses totalled £3,500 and they incurred ongoing storage costs (£2,000) for more than six months as they had work done on their new property.
So far, so predictable. However, their biggest expense came in the form of the Welsh equivalent of Stamp Duty.
The threshold for duty levied in England applies to residential property costing more than £250,000, with the percentage of tax payable for homes costing between £250,000 and £925,000 set at 5%. The tax on an English home costing £425,000, therefore, is £8,750.
The Welsh equivalent of Stamp Duty is known as Land Transaction Tax. It has a lower starting threshold (£225,000) and a series of accelerated tax bands. This means that buyers acquiring a home in Wales costing £425,000 currently get hit with a tax bill of £12,375, that’s 41% more (£3,625) than in England.
In total, my pal and his wife incurred costs of more than £30,000 to downsize, a not insubstantial sum which will strengthen the resolve of many folks to consider alternatives to the argument which says that downsizing can net a substantial sum of money. In the case of my mate and his wife, it reduced their net ‘profit’ by 17%.
Unbeknown to many in the 55+ age category who require extra cash funds to support their retirement, downsizing and using equity release to simultaneously ‘upsize’ should be another conversation to have. An article in the Equity Release Supermarket news section - ‘How Equity Release Can Help You ‘Upsize’ while ‘Downsizing’’ poses another interesting scenario.
Many people consider downsizing struggle finding their dream home, and are not prepared to compromise to anything lesser than this. Their cash surplus from the equity raised by selling high & subsequently buying lower, often doesn’t leave much in the bank. Downsizing and simultaneously using equity release with the new purchase can help relieve the amount of deposit needed to purchase that next home. A worthy consideration.
Irrespective of vintage, almost all homeowners appreciate that their home is their most valuable asset. Those aged 55 and above can access a percentage of the wealth built up in their property, tax-free, using an equity release product known as a lifetime mortgage.
The lifetime mortgage allows older homeowners to make voluntary payments towards the interest or balance of their loan. Uniquely, because the payments are voluntary, the homeowner(s) can stop making them at any time without incurring a penalty.
These features of equity release are worth bearing in mind, not least because emotional costs are difficult to measure, whereas actual outgoings provide a more tangible computation of the expenses associated with downsizing. It follows that if coming face-to-face with the substantial cost of downsizing doesn’t appeal to you, there could be great merit in researching the equity release option.
