The pros and cons of downsizing your home in retirement

The information on this page should not be considered as financial advice. If you are unsure what’s right for you, please make sure you speak to a financial adviser.

Downsizing in retirement can be appealing as you grow older. It can provide you with extra money for your retirement and somewhere to live that’s better suited to your needs.

Yet downsizing in retirement may not be for everyone, and it’s important to consider the pros and cons of downsizing before deciding whether to proceed or stay in your current property.

What does downsizing in retirement involve?

Downsizing involves selling your home and moving to a smaller, cheaper property to boost your retirement funds.

If you own a property that’s bigger than you need, downsizing in retirement allows you to free up equity and move into more manageable accommodation. The option to downsize is often taken by parents of children who’ve flown the nest, are struggling with maintenance, or are looking to reduce their bills.

Whether you’re seeking a complete change of lifestyle, want to live closer to friends and family, pay off your mortgage, or enhance your pension pot, downsizing in retirement could be an option for you. A retirement advice specialist can help you to understand what the right options are for you.

What are the advantages and disadvantages of downsizing?

If you’re looking to increase your money in retirement while moving to a smaller home, downsizing could be a practical solution. From freeing up cash to fund your lifestyle to helping family get on the property ladder, downsizing provides a range of benefits for many people.

However, downsizing may not be for everyone, and it’s important to consider the pros and cons before committing to selling your home. For example, if unlocking cash tied up in your property is your priority, equity release could be an alternative option as it means you won’t have to move or relocate.

If downsizing is something you’re thinking about, it’s important to weigh up the advantages and disadvantages to help you make an informed decision.

Advantages to downsizing

There are lots of advantages to downsizing your home. These include:

1. Releasing equity

If your current home has been your residence for many years, its value has probably increased, and you may have paid off most of your mortgage, if not all. By downsizing to a smaller and cheaper property, you can pocket the equity to fund your retirement or use for whatever you wish.

Homeowners of five-bedroom properties who own outright and downsize to a three-bedroom dwelling make an average profit of £498,687 before moving costs. That could enable you to purchase your next property as a cash buyer which could widen your choices, reduce the onward chain, speed up the move, and allow you to live mortgage-free.

2. Lower bills

Selling your property to move to a smaller home can provide significant savings when it comes to paying for energy bills, council tax, and other running costs. As well as keeping more of your money in your pocket, you’ll have more time to explore new opportunities and do the things you enjoy in life

3. Less maintenance

Smaller homes and bungalows typically require less maintenance and repairs than larger properties, saving you both time and money. While you may be able to cope with the cleaning and maintenance in your current property, how would you manage in the future when you’re older?

4. Easier access

Many people experience mobility challenges as they get older, and it becomes impractical for them to remain in their current home. Downsizing enables you to choose a comfortable property that’s better suited to your needs. Whether it’s contending with stairs, restricted access, or maintaining a vast garden, downsizing lets you pick your next home based on accessibility and practicality.

5. Better location

If you live in a rural area and heavily rely on driving a vehicle to get around, downsizing to a smaller property in a better location could be an attractive option. As well as accessing cash tied up in your home, you could live somewhere with strong public transport links that’s closer to local amenities, medical facilities, shops, restaurants, and more.

6. Move closer to family

Selling your home to be closer to family and friends is one of the main reasons people downsize in retirement. You may have children or grandchildren you want to see grow up, or you may be needed to help out with childcare, downsizing provides plenty of flexibility for those looking to move.

Disadvantages to downsizing

As well as the numerous advantages to downsizing, there are also drawbacks that you should consider before you press ahead with the same of your home. These include:

1. Relocation costs

As with most property moves, there are a variety of costs associated with downsizing. From stamp duty to estate agent fees, we’ll cover these costs in the section below.

2. Less space

The nature of downsizing means your next home will have fewer bedrooms and rooms and generally less space for your belongings. You may have to get rid of some of your items or pay to keep them in storage. You’ll also have less room to accommodate family and friends when they stay over.

3. Emotional bond

If you’ve lived in the same home for a number of years and possibly raised a family, you’ve probably formed close ties with neighbours and the local community. Downsizing to a smaller house possibly in a new area away from your friends and family can be emotionally challenging, especially later in life.

4. Lower availability

You may find the area you want to relocate to has fewer smaller properties suitable to your needs.

What costs should I consider when downsizing in retirement?

There are numerous costs to factor in when downsizing in retirement. According to the Home Owners’ Alliance, the average house move in 2024 costs £10,519 which can be higher or lower depending on where you live, the property’s value, and the options available to you.

If you’re downsizing to a smaller property, here’s everything you need to know.

Stamp Duty

When downsizing, the amount of Stamp Duty Land Tax (SDLT) you’ll pay on your next home depends on how much you paid for it, when it was purchased, and whether you’re eligible for relief or an exemption.

If the property you’re downsizing to is the only home you own, you’ll be subject to the following stamp duty rates up to 31 March 2025:

However, Stamp Duty rates are due to change under rules brought in by the new Labour government. Therefore, the following rates will apply from 1 April 2025:

Also, if the purchase of your new home will result in you owning two or more properties, you may have to pay an additional Stamp Duty fee on top of the normal STLT rates.

Estate agent fees

UK estate agent fees in 2024 are 1.42% on average including VAT which averages out at £3,900 for a £275,000 property. However, fees can range between 0.9% and 3.6% depending on the estate agent you use, how many agents you are using, and any negotiations you may have to secure a lower rate.

Property survey

If you downsize, you’ll need to survey your next home to assess its condition and highlight any problems that may affect its value. The cost of a survey can ranges from a few hundred pounds to several thousand depending on the type of survey and how much you paid for the dwelling.

Conveyancing fees

Conveyancing fees are a significant cost to factor into any downsizing project. It refers to the money you’ll pay a solicitor or licensed conveyancer to arrange the legal transfer of the property from the previous owner to you. In 2024, average conveyancing fees stood at £1,567, a rise of 18.7% on the previous year.

Removal costs

Like any home move, downsizing in retirement will incur removal costs for transporting your belongings from one property to another. In the UK it typically costs between £50-£80 per hour for two removal personnel plus a van. However, these rates can be higher depending on how much is being moved and the distance you’re travelling.

Clearance costs

When downsizing in retirement, you may be ready to lose some of your belongings as you adapt to living in a smaller house. You may be able to contact your local council who will take away your bigger items. Similarly, many removal companies also offer a house clearance service that will take away all your unwanted items, usually at no extra charge.

What are the alternatives to downsizing in retirement?

If you have cash to unlock in your home, you don’t necessarily have to downsize and could consider options like equity release. While both allow you to access money tied up in your property, there are key differences between downsizing and equity release.

Some alternatives to downsizing in retirement include:

• Equity release: Allows you to release money from the value of your home without having to move, relocate, or pay it back during your lifetime. Often referred to as a ‘lifetime mortgage,’ equity release is typically paid as a lump sum or a series of smaller payments. However, taking out equity release means you’ll have less inheritance to leave for others when you die.
• Lifetime mortgage drawdown: Allows you to access equity tied to your property by releasing cash over time rather than as a one-off lump sum. Unlike a traditional lifetime mortgage, a lifetime mortgage drawdown means you can take money over time. However, like a lifetime mortgage, you won’t make regular payments as the interest accumulates each month and is paid off in full at the end of the loan.
• Home reversion plans: You sell all or part of your home to a home reversion company in return for a tax-free lump sum or series of smaller payments. A home reversion plan means you’ll no longer own some or all of your home, but you can choose to continue living in the property either rent-free or for a nominal sum. When the last borrower passes away or moves into long-term care, the home's sale proceeds are split under the terms of your plan.

Need more advice about the pros and cons of downsizing your home in retirement?

If you’re considering downsizing your home in retirement, it’s wise to seek professional retirement and pension advice to explore all the options open to you. Why not speak to one of our friendly advisers today? Request a call back to discuss your future financial plans.