Making the move: downsizing

In 2012, the government estimated that net private housing wealth – the combined value of all housing after mortgage borrowing is deducted – was £3.5 trillion, almost exactly the same as total private pension wealth.

Given this, it’s inevitable that many people will look particularly close to home when it comes to searching out potential sources of retirement income. And perhaps the most obvious way to do so would be to sell your existing home and move to something smaller. 

To get some idea of how much capital this might allow you to release, it’s important to do some research into house prices in your area. If you find that you can raise an amount you’re happy with, the capital could then be used to generate an income in one of two ways:

1) Buying an annuity 

2) Investing the money and drawing a regular income from those investments

One of the options available could be to reinvest some of the money in a pension, as this could increase the capital available through the addition of tax relief. But you need to remember that any income from a pension is subject to income tax at the highest applicable marginal rate, once the tax-free lump sum (25% of the fund) has been taken.

Could you generate an income from downsizing?

If the money gained from downsizing is put into an investment account, our analysis confirms that a reasonable income could be generated, assuming a move from the most to least expensive property type across the regions of the UK. 

We calculated an initial income withdrawal could be anywhere between £391 and £1,775 a month, based on average regional houses prices and some assumed returns on your investment. We assumed that the investment grows at 5% a year net of charges,  that the money released from downsizing should last 30 years and that withdrawals increase at 2% a year.

In reality, the value of any investment may fall as well as rise and you may get back less than has been invested. Any income you take may be taxed at your marginal rate.

Obviously, the amount of capital that can be released will depend upon how much your current property is worth, and any mortgage you may have on the property, relative to the price of the smaller property you buy to replace it. If the two prices are close to each other, the ‘frictional’ costs of moving (such as conveyancing, legal, stamp duty, redecoration and new furnishings), may mean that moving won’t free up as much capital. 

One final aspect of downsizing worth considering is downsizing to a purpose-built retirement house or retirement village. Whilst special retirement properties are likely to cost you more to buy, and you may also have to pay regular service charges, they also offer peace of mind and the opportunity of companionship. 

Loneliness is a big issue for many older people, particularly those who have lost a partner. It may be hard to cope physically and emotionally in the old marital home, so moving to a smaller modern home with on-site care can often be the best outcome.

Downsizing – the pros and cons

Downsizing is probably the most financially efficient way to use the monetary value within our homes. But whilst our analysis so far shows that downsizing is viable, it might not suit everyone. Let’s have a look at some of the pros and cons:

Downsizing pros

Downsizing cons

Can release a reasonable amount of capital which can be used to generate a meaningful monthly income.

You will incur fees and costs when you move. For example: conveyancing/Homebuyer Report, Stamp Duty Land Tax, new furniture, decorating/renovating, removals.

Unlike lifetime mortgages (see below), there is no borrowing and no interest to pay.

You may find it hard to leave the place you have called home for a large part of your adult life and which may have strong emotional attachment. 

Unlike home reversion (see below), you still own your own home outright, even if it is a bit smaller or in a different area.

You may have to move area if there are no smaller properties where you currently live.

Smaller properties are normally easier and cheaper to maintain. And you will probably have lower utility bills.

You may be living closer to other people than you are used to, particularly if you downsize from a detached property to a flat.

Moving closer to other people can be important, particularly if you are on your own.

No space for guests if, for example, your children come to visit.

Gets rid of extra unused space

Less room for belongings

If you’re not sure what is the right option for you, speak to your financial adviser. If you don’t have a financial adviser, you can find one in your area at



AR01577  12/2015

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