an an image of older couple wondering does downsizing save money, considering about selling and downsizing

Does Downsizing Save Money?

With many people looking at options to make their money go further and get the most out of the assets they have, moving to a smaller home is something some people might be considering.

New research suggests that three out of ten British homeowners have already considered changing their living arrangements to help meet the rising cost of living. While increased costs are affecting people differently across the UK, the research shows that rises in basic household bills are having the greatest impact.

The biggest cost of living impact included rising energy costs (82%) and grocery bills (82%), closely followed by rising fuel prices (72%). For those with a mortgage, only one in three (34%) suggested it rising had been the biggest cost of living impact they faced. With mortgages or rent often being the largest single household expense, finding ways to reduce them could help those feeling the financial squeeze. The research shows three out of ten (33%) have already considered options like downsizing, relocating or cohabiting, with almost one in five (17%) saying downsizing was something they had considered.

Those living in Central London were much more likely to have considered downsizing or relocating (32% for both) than the UK average. People in Yorkshire & Humber (12%) were least likely to have thought about downsizing, while those in the North East were least likely to wonder about the prospects of relocation.

Though just four in 100 (4%) had gone as far as actually moving to a smaller home to help meet their increasing costs, the idea was not ruled out by many of the respondents. Of those surveyed, nearly two-thirds (60%) said moving to a smaller home to help with the cost of living would be something they might consider.

When thinking about moving to a smaller home, the reduced cost of living (72%) was most commonly named as a benefit of downsizing, with a third (33%) placing it as the number one benefit. The financial benefits of downsizing can be realised through releasing equity by selling a larger home, moving to lower monthly mortgage payments or a combination of both.

However, the amount of equity that those surveyed said they might expect to realise, £105,000, could be an underestimate. Based on an analysis of house prices of different-sized homes, moving to a home one bedroom smaller would, on average, raise £120,820. The average house price of properties of different sizes varies greatly around the UK’s regions and per bedroom depending on the relative size of the home. According to the research findings, homeowners in London with five-bedroom homes would, on average secure a four-bedroom home for nearly £370,000 less, also saving around £1,800 per month on mortgage payments.

The ‘per bedroom’ premium falls with smaller properties, but even moving from a three-bedroom to a two-bedroom home is over £125,000 less, saving more than £600 each month on mortgage repayments.

The potential savings from downsizing by a single bedroom are present across all regions of the UK, with the greatest being between five and four-bedroom and four and three-bedroom homes. On average, the monthly mortgage saving could be £935 or £809, respectively.

On the other side, moving costs were most often cited as one of the main drawbacks of downsizing (39% of people put this in their top three), along with the lack of space for personal belongings (38%). The distance from family and friends (29%) and being in an unfamiliar area (28%) were also high-ranking concerns about downsizing.

Expectations of how close a smaller home might also be looked to be somewhat ambitious. The average distance people expected to move to find their smaller home was 29 miles. However, any concerns about the remoteness of family and friends might be stretched by the 54-mile average distance moved by those who have already downsized.

For those where it is an option, downsizing can lower mortgage costs which could help with the cost of living or release significant equity for a financial buffer. But it’s not without its own challenges. The time it can take to move home, distance from friends and family, and the reduced space can all put a question mark on whether the move to a smaller home could work. 

If you are considering downsizing and want to discuss options to lower your mortgage costs, for more information, contact Mortgage Xperts via our contact page or call us on 0151 329 2900 – email [email protected].