Four Reasons Downsizing Could Work for You

Downsizing isn’t just for retirees and parents whose young have flown the next, increasingly, it’s being used by many as a smart financial tool to change their financial circumstances for the better. We’re often sold the dream of climbing up the property ladder to bigger, more luxurious homes as we grow older. But what happens if you decide to take a step or two down instead? Here are just four circumstances where downsizing could prove a smart choice for you.

You’d like to go mortgage free

How much of your salary is taken up by paying your mortgage? It’s likely to be a sizeable chunk and one that could really make an impact on other aspects of your life if you didn’t need to pay it. Providing you have enough equity in your property, downsizing to a cheaper home could allow you to go mortgage free. You may need to part with a few belongings or sacrifice your spare room, but would that not be a fair trade for the increased financial security? At a time when mortgage rates are rising in the UK, being mortgage free means you’ll have more money left for paying other bills or spending on luxuries such as holidays. With your outgoings reduced, you may also find that you’re able to work fewer hours or even plan for early retirement. Alternatively, you could start saving towards a big trip. The number of first time buyers taking mortgages with a 31-35 year term has doubled in the last ten years, so will you buck the trend by paying off your mortgage before you hit forty?

You want to lower your mortgage

If your fixed rate deal is coming to an end or you have a tracker mortgage, the recent rise in UK interest rates is likely to have rung alarm bells for you. Swapping your home for something smaller and more affordable could prove a smart move when it comes managing the risk of rising inflation and interest rates. By downsizing, you could end up with a lower loan to value level, which should unlock more attractive rates of borrowing for you. Go over a significant threshold like sixty, fifty or forty per cent loan to value, and provided you have a credit rating, there should be a noticeable difference in the mortgage deals available to you. Lowering your mortgage payments should leave you with more leftover at the end of the month to save for a rainy day or to fund your hobbies and interests. Or it may simply make the cost of living a little less stretched, after all, with the cost of the average household’s energy bills rising by £200 last year, right now you may be feeling the pinch. And by downsizing, not only should you have more money to pay bills, but you’re likely to enjoy lower energy bills and perhaps cheaper council tax too.

You want to live in a desirable area

Whether you’re one of the 25% of parents moving to be in a better school catchment area or you’d like to be closer to amenities or to reduce your daily commute, buying a smaller home may be the only way you can afford to move into a more desirable area. Rather than overstretch yourself by looking for a property of a similar ilk to your present home, consider what you may be able to compromise in order to downsize your financial commitment. Could you lose the spare bedroom? Perhaps the kids could share a room? Maybe a driveway would do instead of a garage? While downsizing may seem like a tight fit at first, there are clever fixes that can make it a more comfortable solution. If you’ve never been a fan of the open plan living that’s often found in smaller, modern homes, could you add some separating bi-fold doors to give you the spaces you desire? If a bedroom each for the kids or a spare room is a must, could a loft conversion prove a cost-effective way to carve out the extra space you need? When it comes to deciding what you simply can’t compromise on, think about the spaces and features you use the most. Is some sort of outside area essential for the kids and the pets? Would you prefer a larger living room or do you tend to congregate in the kitchen? Tailor your downsizing search to your personal preferences and living in a smaller home won’t feel like such a squeeze.

You’d love a holiday home

Despite the increase in the rate of stamp duty paid on holiday homes, we Brits are reportedly still buying a place in the country or by the sea at a rate of 25,000 a year. And according to the Financial Times, many investors are making purchases more affordable by clubbing together with family members to purchase a shared boat hole. If you have a favourite holiday spot where you’d love to buy a property, downsizing your main property could help you to free up cash for a deposit. You could even consider letting out your holiday home when you are not in residence. Though you’ll need to familiarise yourself with the rules on paying tax on furnished lettings if you do.

Would you consider a downsizing move? Do you dream of being mortgage free or would owning your own holiday home be more of a motivator for you?

from Finance Girl http://www.financegirl.co.uk/four-reasons-downsizing-could-work-for-you/