Sale of Property - Home Downsizing
Trading down: Worry about the right thing for you - not the market!
The difficulty in deciding whether now is the right time to trade down or not often depends on your circumstances. There are usually two very different reasons to sell a larger property and buy a smaller one. The first is due to sad personal circumstances such as death, divorce or debt, the second is a happier one as you may well be retiring and now's the time to find somewhere to live mortgage free.
Trading down due to Death, Divorce and Debt
Often we don't have much choice when hit with these circumstances and therefore we just ‘have to get on' with selling up whatever the market circumstances.
If you are lucky enough though to have no mortgage on the property, or you have at least 10% equity, then you should still be able to trade down successfully. It won't be easy, selling a larger property for less money in a falling market tends to be difficult financially as you lose more than you save when trading down. For example if you sell a £300,000 property for 10% less than you could of done prior to the credit crunch you'd lose £30,000. If you then bought a £150,000 property also worth 10% less, you'd only save half that much ie £15,000.
This though is a time when the money is less relevant. Hopefully you will have owned your property pre-credit crunch so you will have secured some capital growth in the house price and don't forget all of this is free of any tax.
If you haven't enough equity in your home to sell though, or you really would prefer to wait until the market picks up, then it's worth considering renting the property out.
Renting a property that you intend to sell in the future means you will become an ‘accidental or reluctant landlord', ie someone that isn't trying to buy to let or rent for profit. You can then either rent out your current home and live with friends/family or you can rent a smaller, more affordable and manageable home until you get settled and are in a position when you can sell and buy again.
Renting your home though is a complicated process. You'll need to seek permission from your mortgage lender, secure landlord insurance and abide by a whole heap of rules and regulations. On top of that you may have to pay tax on the rent and any property gains if you rent it out for several years. So it's advisable to seek help from a ‘lettings specialist'. What I mean by this is not an estate agent that lets out property too, but an agent who:-
- Only lets, not sells property
- Is a member of NALS or ARLA
- Protects your rent via the above membership and/or is part of the ‘Safe Agent' scheme
They will advise you of all the electric, gas, tenancy deposit schemes, energy performance certificates and other paperwork you will require and will very much help you through the process.
Trading down in the current market for Retirement
If the property you currently own is just too big and you want somewhere more affordable and manageable, then you are likely to be in the lucky position of owning your home outright. This means you‘ll be trading down as a cash buyer, which in the current poor market is a fantastic position to be in!
With the current market having a lack of buyers, the main thing is to secure the right agent to sell your property ie someone that recommends what your property is worth based on sales of similar properties local to you. Visit our section on Which Estate Agent for more about how to choose the right agent. Once you are sure you know how much you can spend on your next property, then take your time, especially if you are moving to a new area. Many people trading down make the mistake of choosing a property that won't suit over time. Sadly you are getting older (sorry!) and the need for healthcare and easy access to public transport will be required at some stage, so make sure you choose areas near family and friends who will always be there to help you out if required.
If you are moving to a new area and/or are not sure about selling your home in the current market or struggle to do so, as with death, divorce and debt, why not try renting your property out and renting in the new area - just to make sure it's right for you?
This will give you a minimum of six months to work out what's the right thing to do. In that time you can decide whether you really want to give up your current home and trade down and work out where else you might like to live.
Being a cash buyer allows you to be in a great position to bargain on a smaller property or you can just let your property and rent for as long as you like, so the main message if you are trading down is: Don't worry about the market conditions, take your time to work out what and where you'd like to live and enjoy all the tax free income you are likely to have earned from your property over the last 10 or more years!
For all the up to date property market prices, visit our Latest Property Market Update.
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