15 min read

Are there any alternatives to downsizing your home?

There are few more satisfying moments in life than finally paying off your mortgage. The downside is that it’s probably sucked up most of your spare cash along the way – and there’s a good chance you’ll be either retired or very close to retirement by the time you’ve paid it off.

A woman sat on the floor, showing her husband a picture frame while packing to move houses

Why downsizing your home might be an option

Downsizing to a cheaper home later in life could be one option to free up spare cash for retirement. It can also be more practical, living in a smaller place means easier upkeep.

It’s a popular choice when the kids fly the nest. With as much as 26% of over-45s confirming they had already downsized, or were planning to do so*. And with over 45s expecting to pocket a tidy £57,140 (on average) from selling up and moving elsewhere, it’s easy to understand the attraction of downsizing.

Why it’s important to look at alternatives to downsizing

Of course, just because it seems logical doesn’t mean it’s right for you or your loved ones. Research has found that a desire to stay in the family home intensifies with age, with 80% of over-45s expressing a desire to stay in their current home as long as they were physically able to*. The percentage rose to 89% of 65-74s and 96% of over 75s.

People get attached to their homes for myriad reasons. Perhaps they feel like they live in a nice, convenient location that’s part of a safe neighbourhood. Or they could just like what they’ve done with the place.

Downsizing also comes with more immediate financial drawbacks, such as costs associated with selling, moving house and paying stamp duty on the next property. So it should never be seen as the only solution to costs as you approach retirement.

What other options are available to me?

Just because you’re approaching retirement, that doesn’t mean you have to sell up and downsize to cut costs. Sourcing income from your home while you’re still actually living in it is an option.

This can be done in a number of ways. Two popular ones are: renting out spare rooms or taking out an equity release loan, such as a lifetime mortgage.

Renting your home in retirement

Let’s start with renting, which no longer simply means taking in a permanent lodger. Sharing-economy platforms, such as Airbnb, can offer much higher rates during the times of year that suit you most.

The average Airbnb host makes around £700 per month, according to research conducted by U.S. group Earnest. The amounts varied widely, with some hosts earning as much as £10,000 per month and some as little as £150.

Obvious cons include the time and money spent on marketing, property presentation and assisting guests. Airbnb, for example, charges hosts an advertising service fee of 3-5%. Then there’s the fact that you’ll have to live with any number of complete strangers. This understandably may not be for you, and will require you to really think about the commitment you make before choosing to do so.

Renting out parking spots, garages, attics or basements

Other, less invasive, options are at hand, though. These could include renting out spare spaces – such as parking spots, garages, attics or basements – as storage space.

You could even pull in between £500 to £2,500 per day by renting your home out for film shoots. And renting a spare room to students is an increasingly popular choice to make extra income.

However, it’s important to seek advice and make sure you understand the implications of renting out your private property for any reason.

Releasing equity from your home, without moving

But then there’s those of us who love the family home, but don’t want to live with strangers, store other people’s stuff or have the cast of EastEnders traipsing through their living rooms.

For them, equity release can start to emerge as an attractive alternative to downsizing. So much so that the number of new equity release customers in the first half of 2017 jumped by 42% year-on-year, according to the Equity Release Council.

What is equity release?

In a nutshell, the process involves borrowing money from a financial institution against the value of your property.

A typical example of this is a lifetime mortgage. This is where the money you borrow – along with any accumulated interest and charges – isn’t usually paid back until you either die or move into a permanent care home. And even then, this is paid for using the cash generated from the sale of your home. There are products available that allow you to pay off the interest monthly, helping protect the value of your home.

One reason this may be a good alternative to downsizing, is that with a lifetime mortgage you will always retain ownership of your home, so your home will never be repossessed. Of course, this does assume that you keep to the terms of the loan agreement.

It’s important to remember, however, that taking out a lifetime mortgage may lower the value of the property when it’s passed on to family members. There are therefore some elements to consider that may not be immediately apparent – meaning it’s important to speak to a financial adviser first.

Is a lifetime mortgage right for you?

Whatever happens, taking out an equity release plan or lifetime mortgage should involve a long talk with your family. Discussing your options with a reputable financial adviser is also vital before you commit to anything.

Written by Ross Kelly – Financial Journalist

*Sources: https://www.aviva.com/newsroom/news-releases/2016/07/uk-six-million-over-45-homeowners-see-property-as-key-to-their-retirement-income-plans-but-is-there-enough-house-to-go-around-17646/

Note: Whilst we take care to ensure Talking Finance content is accurate at the time of publication, individual circumstances can differ so please don’t rely on it when making financial decisions. The opinions expressed within this blog are those of the author and not necessarily of OneFamily.