Top ten money saving tips: Downsize and save money
WITH bills rising and incomes squeezed, more people are looking to move to a smaller home to cut costs and ease the pressure on their finances. Many are also motivated by lifestyle choices, although the slow housing market means that “trading down“ is often easier said than done. Sandy Burnett, at Murray Beith Murray, shares his top ten tips on downsizing.
As parents mature and their children fly the nest, there are many good reasons for moving to a more manageable property. These include: lower heating and water bills, less time and money spent on maintenance and lower council tax. However, many people who downsize do so because they wish to achieve a greater degree of personal comfort and security.
2 Sell before you buy
Downsizing usually provides participants with a capital surplus, given that the “old” home is being sold for more – in some cases substantially more – than the “new” one will cost to buy. However, to gain access to that surplus downsizers, like everyone else in the market, need to find a buyer first, as banks are reluctant to provide bridging finance. So those deciding to sell before they buy may need to move into rented accommodation (which usually involves a minimum lease of six months) before buying a smaller home of their own.
3 Quick deals
As an alternative, downsizers may be in a particularly advantageous position when it comes to part-exchange deals currently being offered by new-build companies. Such a transaction may require them to accept a “below market” valuation for the property being sold, but on the other hand the sales process will be swift and painless.
4 Stay firm
Because downsizing by its nature usually provides a cash surplus, sellers should not adopt a laissez faire attitude and let themselves be pushed into accepting a lower price just to secure a quick sale (with the exception of part-exchange deals mentioned above). This, after all, will be their last chance to make the most from their biggest, most valuable asset.
5 Choice of property
Downsizing does not necessarily mean “coming down” in the property market. For example, some developers of luxury flats have focused on providing a “sense of space” with one eye on potential buyers downsizing from family homes. The detached bungalow is also popular with downsizers because it offers exclusivity and manageable levels of accommodation on one level.
6 Downsize your tax bill
The money released in moving to a smaller property is a welcome bonus even for those not motivated by necessity. One potential advantage of downsizing is the way it may reduce liability to inheritance tax (IHT), and indirectly help younger family members get on the housing ladder. For example, should a husband and wife gift the cash surplus achieved from the house sale to their children, this money will not be considered part of either spouse’s estate (and, therefore, potentially liable to IHT at 40 per cent) should both still be alive seven years later.
7 When to make the move
There is no official cut-off point at which people decide to downsize, although obviously it becomes more common among those in their mid-fifties onwards. However, issues like physical health and well-being or the relationship between parents and their adult children tend to be more relevant than pure age. Lenders will also have their say, depending on how long is left on the mortgage.
8 Can you borrow?
If, despite downsizing, you still require to borrow to pay for at least part of a less costly property, then do check your suitability for mortgage finance prior to setting the process in motion. Most downsizers are at least in their early fifties, and as such are likely to face much stricter mortgage and term insurance criteria than younger borrowers. Most lenders will not provide finance to anyone over 75.
9 Endowment end-game
Moving to a smaller, less expensive property may be a solution for endowment borrowers (of whom there are many) who face the prospect of not being able to repay their interest-only mortgage because of a shortfall in the lump sum at the end of the loan period. Realising a cash surplus by downsizing may enable disappointed endowment policyholders to pay off their home loans without “raiding” the tax-free lump sum that comes with their private pension or taking out expensive borrowings to make up the shortfall.
10 Be prepared
Downsizing is one of the most significant house moves, as for many people it may be their last. Of those who have downsized and regretted it, only the very wealthy are in a position to trade back up again to a larger and more expensive property. Therefore it is important carefully to weigh up one’s options beforehand.
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Weather for Edinburgh
Saturday 18 May 2013
Temperature: 9 C to 13 C
Wind Speed: 18 mph
Wind direction: North east
Temperature: 9 C to 18 C
Wind Speed: 8 mph
Wind direction: North east