Four pointers for successful downsizing

I have a confession to make. Like many of my generation, through no fault of our own, I am sitting on a small mountain of cash. Of course, by ‘cash’, dear HMRC, I really mean the value of the house I happen to live in. Not, sadly, the contents of my bank account or a share portfolio managed with unusual brilliance.

And yet my house is architecturally unexceptional, and no one famous ever lived here. Its genius, for which I can claim little responsibility, is its location. Simply by staying doggedly where it is for the last 30-odd years it has increased its value dramatically. In fact, if I didn’t live in it already, I could only dream about moving here.

Which brings me to downsizing.

For many in a similar position to myself, downsizing provides one of the major ways of financing a self build, particularly for empty nesters or those nearing or following retirement.

Its advantages may seem obvious, but the devil is always in the detail, so here are four, hopefully helpful, pointers for the would-be downsizer/selfbuilder.

1. Mortgage-free self build

The sale of your existing home may well cover the cost of a plot and the design and construction of your new home. It can also eliminate any remaining mortgage and even leave funds over for retirement or helping out family.

DRAWBACKS It really depends on the property market where you currently live and where you plan to self build. If you’re intending to move from, say, the southeast of England to picturesque Dumfries and Galloway just over the Scottish border, you may be pleasantly surprised by what you can afford. But as homeowners fleeing Covid-stricken London for desirable parts of the West Country have discovered, the sheer number of fellow movers has severely reduced their individual buying power.

SOLUTION Decide what’s more important to you: a house that serves all your needs or a particular location - perhaps due to the proximity of friends or relatives – or its intrinsic appeal.

2. Energy efficiency

According to recent research by Lloyds Bank, downsizers are likely to have owned their current homes for between 11 and 20 years, time enough for major repairs to become due.

Given the average age of British homes - the oldest in Europe - your current house may also be less than airtight and insufficiently insulated. Fuel prices are rocketing and likely to rise further once aging gas boilers are replaced by heat pumps, as the government would like us to do after 2025. In leaky, poorly insulated homes heat pumps are likely to be ineffective or very expensive.

All the more reason, then, to design and build a modern, energy-efficient house where maintenance is minimal and major repairs can safely be forgotten for the foreseeable future. If you really want to minimise fuel costs, opt for a Passivhaus design, claimed to add no more than 10 per cent to your build costs, but reducing your fuel bills by up to 90 per cent. And it will be just as effective at keeping you cool in the summer.

DRAWBACKS A modern house will never have the character or the memories of your old, older home.

SOLUTION Selfbuilding is a way to meet your current and future needs, particularly in terms of mobility, a healthy internal atmosphere, practicality and maintenance. So think carefully about what those needs are likely to be for you. Consult friends and relatives who have made similar moves as well as professionals. Remember, energy efficiency is primarily about the fabric of a building. The design can be anything from Grand Designerish spectacular to a simple, traditional cottage.

3. Downsize into your own back garden

In many ways, this is the perfect solution - in that you stay exactly where you are. You divide part of the garden into a separate plot, obtain planning permission for a new dwelling, build your new home and pay for it by selling off your existing property. You can even choose your new close neighbour. Simples.

DRAWBACKS Well, not entirely. Planning authorities tend to examine applications for ‘infill’ plots with particular rigour. Approvals will usually depend on local planning policies, road access, whether the new property overlooks or overshadows neighbours and how the new house fits in, or doesn’t, with existing dwellings. In other words, it’s an even bigger lottery than planning permission usually is.

SOLUTION Once you have a design to show, make friends with neighbours and local councillors, if you haven’t already, and try to get them onside. Be prepared to compromise.

4. Inheritance tax

Downsizing may suit you very well, but you may be concerned at leaving your offspring a smaller, less valuable property. Recent changes to inheritance tax, however, alleviate some of that concern.

Every estate is granted a zero-rate allowance on the tax it attracts. But a smaller, downsized home will clearly have a lower allowance than a larger, more expensive former home. Now, however, a ‘downsizing addition’ allows your beneficiaries to top up the smaller allowance with the difference between it and the allowance that would have been due on the pre-downsized home.

It’s important to keep a note of the date when the original home was sold and the sale price. And, as in all inheritance matters, do consult a legal expert before making final decisions.