By Rebecca Kowalski FPFS – Becketts’ ESG specialist
Rebecca is a leading light and diligent researcher across all ESG themes, strategies and funds… she is a passionate advocate of sustainable investing and having her expertise within our investment committee is a pick straight from the top of our profession.
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A friend of Becketts recently shared their experience of downsizing with the team and how glad they are to have pushed this button in their 50s, rather than twenty or thirty years later.
Not only did a move triggered by a new job in a new location result in a home that was less of a drain on time and finances, but it also encouraged their last child to leave the nest and successfully jump on the property ladder.
This got us thinking about the possible benefits of moving on from the family residence if it has outgrown you, as well as the importance of timing this right.
For many people, downsizing can have negative connotations and emotions. Some of us will have already seen or helped an elderly relative reluctantly move out of a home packed full of memories and a lifetime’s paraphernalia. The reason might be a bereavement, ill-health or rising maintenance costs on a reduced income but the result is often sadness and regret.
Nobody likes having this kind of unwanted change forced on them.
Packing everything up, deciding what to let go and what to keep, planning the logistics and physically moving furniture and boxes is tough at any time, but undoubtedly easier if you are younger, fitter and have proactively chosen this step. Psychologically, it’s also easier to embrace the change if the new location is seen as the base for the next exciting phase of your life and not the destination for its last chapter.
Downsizing is a blunt term – it suggests you sell a large, high value home for a smaller one with a lower purchase price. There are however a number of variations that might apply. If you move to a new area, you may find you get fewer square feet per pound and having less room may not free up a lot of capital. You might also find a greater demand for smaller properties amongst first time buyers and less people willing to pay over the odds for three toilets and a lot of grass to cut. A move might also not be all about changing size but perhaps switching from urban to rural or gaining or losing a big garden or a flight of stairs. A better term might be “right-sizing”.
Timing this right can clearly have physical, psychological and lifestyle benefits, but there a number of ways in which it can also be good for your financial planning. Most obviously, it may release a decent amount of capital (once any mortgage has been repaid) and a lot of options about how you could use it. Investment for a tax-efficient income – present or future; a gift to make a life-changing difference for a child or grandchild; even a modest gift for yourself or the planet – a bucket list item ticked-off or solar panels tacked on. The cashflow effects may also be significant – a downsize or right-size could make you debt free, as well as reducing council tax, energy and maintenance costs.
These benefits will apply regardless of whether you move sooner or later, however the impact of a capital or income injection will be greater the earlier it is received. Being able to help a child out at a crucial life stage can also be much more powerful than a long distant, inheritance-taxed windfall.
Selling the family home is of course not possible for everyone at the current time, but simply thinking about and planning for this possibility in the future can make a significant difference to your financial planning.
The financial plan or forecast that you build with your adviser can incorporate many anticipated life events and stages – such as when you retire, when you inherit, when your child goes to University or gets married, when you might find yourself in need of care and assistance in old age.
We consider all the things that might add or remove money from the bank account of life and see if we are in the red or the black.
Adding in the downsize/right-size at the appropriate time can create a capital injection and expense reduction to your plan. This can either move you into (or keep you) in the black or avoid you having to do other things to do so, such as working until 65 instead of 62.
Obviously, this transaction shouldn’t be added to your plan at age 58 if you think you would have to be dragged out of your Casa kicking and screaming, but if a fresh start is a possibility or probability, it’s worth looking into how it might free you up financially.
We’ve considered how moving to a smaller property might benefit you physically, emotionally or financially but there are a couple of other positives worth mentioning too. A large home does not just eat money and generate lots of responsibility; it can have a big carbon footprint too. Burning gas to heat five bedrooms is easier to justify if they all have a person sleeping in them. If not, then it’s kinder to future generations to opt for a more energy-efficient abode.
And there are social as well as environmental benefits, just as the government is considering reducing prison sentences to free up prison space, reducing our terms in large houses can play a part in tackling the shortage of housing in this country.
They say an Englishman/woman’s home is their castle, but how user-friendly are castles really? If your home seems more suited to your past than your future, then it may be time to think about a change. As with any major life or financial decision, we naturally recommend you discuss the money and tax implications with your adviser well in advance of phoning the estate agent.
