Should I downsize my home to fund my retirement?

If you’re a homeowner, you might be able to: 

• sell your home  
• use the funds to buy or rent a cheaper home 
• keep any cash that’s left over. 

This is often called downsizing as it typically means moving from a larger home to a smaller one, usually giving up extra space that’s no longer needed. 

A smaller home might also mean you have cheaper household bills and lower maintenance costs.

Renting is typically less secure than owning your home, as you usually cannot control how much future rent you need to pay, when it will increase and if the landlord wants to sell the property.  

It might also work out more expensive over time if you’re moving from a home you own outright or have an affordable mortgage on. You’ll need to make sure you have enough retirement income to cover your rent now and in the future. 

Whether or not downsizing is right for you usually depends on how well your current home meets your needs – now and in the future.  

You’ll also need to be comfortable with the idea of moving and leaving your current home behind. This can be emotional and is a decision you normally cannot undo. 

Moving home can also be very stressful, so it’s worth factoring in the impact on your health it might have.  

If you’re happy to move, you’ll also need to consider:  

• how much you could sell your home for 
• if a cheaper property would give you the lifestyle you’d like 
• how much you’d need to pay to: 
  • buy or rent a new home 
  • move, including legal fees and taxes 
  • renovate, adapt or maintain a new property. 

You can then work out if the amount of money you’ll have left over is worth it. 

If you’re not sure how much your home might be worth, you can:

• get an instant online valuation on RightmoveOpens in a new window 
• use Zoopla's online property valuation toolOpens in a new window
• ask an estate agent for a free valuation – it’s a good idea to get at least three valuations as some agents might overvalue your home to try and win your business. 

Remember, these valuations are just a guide. Your home is only worth what someone else will actually pay, which might be more or less. 

Next, research the cost of moving to a different property. You can search for properties to buy or rent on sites such as: 

• OnTheMarketOpens in a new window 
• Prime locationOpens in a new window 
• RightmoveOpens in a new window 
• ZooplaOpens in a new window  

It’s worth thinking about if the new home will help you keep your independence for longer. For example, moving to a bungalow, retirement property or sheltered housing.  

If you’re looking to move to a smaller property, you might also need to consider if you’d be happy to sell or give away some of your belongings. 

To understand the true costs and potential benefits of downsizing, you need to have a good idea about how much you’ll pay to live at a new home. 

You can: 

• use comparison sites to get quotes for household bills such as electricity, gas, home insurance and broadband 
• check the property listing or ask the estate agent for the amount of Council Tax or Rates you’d need to payOpens in a new window

Even if downsizing could give you lots of money, always consider the impact on your lifestyle.  

If you're thinking about moving to a different area, make sure to spend enough time there to make sure the new location will work for you.  

For example, is the new area close enough to shops, the doctors, friends and family? Is there good and affordable public transport? 

If you’re currently receiving means-tested benefits, be aware that receiving extra money might affect how much you qualify for. This means your payments might go down or stop.

You can use our Benefits calculator to check if you’re eligible for now and how it might change if your income or savings increased. 

Downsizing your home might affect how Inheritance Tax (IHT) is calculated, depending on who inherits your estate.  

The rules can be complicated, so see our full guide about Inheritance Tax for more information. A regulated financial adviser can also explain the rules to you. 

If you decide to downsize your home and have a will, make sure it’s still accurate and has your correct address. It might be considered invalid if it has the wrong address. 

It’s also worth checking it still reflects your wishes. For example, you might want to divide cash savings differently if these will be boosted. Find out more in our guide Making a will and planning what to leave.

Downsizing is not the only way to use the value of your home to help pay for your retirement. Both alternatives also mean you can release money without moving. 

Equity release lets you convert some or all of the value of your home into a cash loan, without you needing to move.

There are two main ways to use equity release: 

1. Take out a lifetime mortgage on your home, with interest charged on the amount you take. You’ll repay the loan when you sell the property, die or move out, but might need to make regular payments to cover the interest. 
2. Sell all or part of your property to a home reversion plan provider, at less than its market value. You then stay in your home as a tenant for the period you agree, with a very small amount of rent to pay.   

Equity release can be expensive and you must speak to a specialist adviser or broker before you can do it. This can help you work out if it’s right for you. 

A retirement interest-only (RIO) mortgage lets you: 

• take a loan out against your home 
• pay a monthly amount to cover the interest on the loan 
• repay the loan when you sell the house, die, move into long-term care or when the mortgage term ends.   

If you can pass the affordability checks, this can work out cheaper than equity release as you do not pay compound interest (interest on the interest). For more information, see our guide about retirement interest-only mortgages. 

There are many ways you can increase your retirement income, including: 

• paying more into a pension – your employer might also match your contributions 
• checking you’re getting all the tax relief you’re eligible for 
• making sure you’re on track for the maximum State Pension  
• delaying your retirement date. 

A regulated financial adviser can help you plan for retirement, including:     

• recommending products and providers to use    
• advising where to invest your money  
• explaining your options to reduce the tax you might need to pay.