Richard Wise didn’t plan to leave London for Margate in Kent and move again shortly afterward. Nevertheless, facing a mortgage rate that shot up fourfold, the music industry manager and his partner are considering switching from their four-bedroom home to a three-bedroom one.
“Our mortgage payments doubled after Liz Truss’s shocking mini-budget last September,” the 40-year-old explains.
While they did use an inheritance to reduce some of their mortgage, the spike in rates from 1.09% to 4.9% strained their finances.
Feeling safer about downsizing, Richard remarks, “We thought we could cope, but downscaling seems more secure.”
Despite his reluctance to market their home in March, fearing it may not be the best for his family and distressed by his daughter’s reaction to the sale, Richard is clear that they will only move to ease the family’s financial situation. “We’re only downsizing if it means a significant financial benefit,” he says.
Since the infamous mini-budget rattled the mortgage industry – with two-year fix deals peaking at 6.86% in July 2023 – people have been under financial pressure.
While mortgage rates have decreased somewhat, many homeowners are still facing higher expenses as their fixed deals end, compelling them to find ways to reduce costs, such as downsizing.
This trend includes Sophy Dale, 50, an Edinburgh-based copywriter who relocated with her family to a smaller apartment. Their substantial cut in the mortgage loan means “whatever happens to the rate, we should be okay,” says Dale, who faced additional constraints after an injury reduced her working hours.
Their mortgage payments decreased from £750 to £330 per month after leaving their fixed-rate deal. For Dale, downsizing is about financial security and gaining control over at least one aspect of their expenditures.
The shift to a smaller home brings a sense of progress toward ultimately clearing the mortgage. “Even if rates soar, we can still manage payments,” she remarks, emphasizing the precautionary nature of their move.
A 2023 report by Confused.com highlights the considerable financial benefit of downsizing from a four-bedroom to a three-bedroom home – typically around £110,000.
Jason Webb, 35, is also seeking a more manageable home for his family in light of global uncertainties. The physiotherapist from Westbrook in Thanet, Kent aims to create a financial safety net against rising food and energy prices by moving to a more affordable area, looking at homes £40,000 cheaper than their current one.
However, the typical UK moving cost hovers around £15,000, considering fees like estate agents and removals, plus potential stamp duty and mortgage charges.
For many, the desire to ease mental strain from financial worries outweighs the moving expenses. Richard Wise is determined to downsize for long-term savings and better mental health, despite immediate costs.
As homeowners and first-time buyers increasingly consider smaller properties to manage mortgage costs, experts are weighing in on the benefits and drawbacks of downsizing.
David Sharpstone of CIS Mortgage Advice notes that people now prefer smaller properties as interest rates have risen. “Homeowners are downscaling,” he observes, pointing to the current financial climate.
Reducing mortgage payments has resulted in more people downsizing, with a trend of first-time homebuyers opting for smaller properties, including flats, instead of houses. Simply Lending, a mortgage advisory service, has seen a twofold increase in inquiries about downsizing in the last six months. David White, the Chief Operations Officer, notes that the uptick is due to clients finishing fixed mortgage deals and finding themselves unable to afford the new monthly payments.
However, White cautions that the financial relief from downsizing may not be as significant as people hope because of the continued high interest rates and property prices. Mortgage expert Karen Noye from Quilter, a wealth management firm, observes that rising mortgage rates are causing more individuals to consider downsizing as a way to free up cash and reduce expenses. Even with some mortgage rates dropping, new mortgage payments can be significantly higher, prompting thoughts of downsizing.
Noye recommends that people contemplating downsizing should consider whether they are doing so to save money or to merely get through this challenging economic period. For those who find they can’t afford their mortgage on top of high food and energy costs, downsizing may be a necessary step to unlock equity and decrease monthly expenditures. But she points out that downsizing should be based on individual needs and family size, and it’s important to remember that moving incurs additional costs, including estate agent fees, legal costs, and stamp duty.
Downsizing purely as an immediate reaction to economic pressures should be carefully thought out. Noye advises that for many, the home is the most valuable asset, and so it might be more advantageous to leverage its equity for retirement instead of downsizing early. Taking such a step prematurely could financially harm one’s long-term security. It’s essential to analyse overall finances and explore all potential savings before deciding to downsize, as it might be a quick fix to what could be a temporary problem if interest rates decrease later in the year.
