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Asset-rich but cash-poor? Are these the people most likely to downsize? Or is this a generalisation that hides a bigger truth?

Recent research (April 2021) from Hargreaves Lansdown suggests that only 34 per cent of the 2000 people polled had definitely ruled out downsizing in retirement. Of course, plans change and some of those who make up that 34 per cent may yet find themselves looking to sell a larger or more expensive property and buy somewhere smaller and/or cheaper as their circumstances evolve. However, the question is an interesting one as it poses more questions of its own. For instance:

1. Why downsize?
2. Who is most likely to consider downsizing?
3. If you're downsizing to free up cash, what is that cash for? And will downsizing free up enough cash for you to put your plans into action?
4. What are the alternatives to downsizing?
5. Will you be able to find a suitable property to downsize into?
6. When is the best stage of life to downsize?

We take a look at each of these questions in turn.

1. Why downsize?

We probably all know someone who's downsized. Many of us will also know someone who we wish would downsize. And some of those reading this may currently be considering - or are being asked to consider - downsizing. Reasons vary, but commonly cited factors include:

- a home that's too big or expensive to maintain;

- a home that's no longer suitable for the occupants' physical needs;

- a wish to move closer to family;

- a need or wish to free up cash;

- as a result of a relationship breakdown;

- a desire to reduce one's environmental impact.

2. Who is most likely to consider downsizing?

The Hargreaves Lansdown research suggests that it is higher-rate taxpayers and younger people who are most open to the idea of downsizing. As they're more likely to buy larger homes that they may ultimately want to swap for something smaller, it's relatively easy to imagine why higher-rate taxpayers might envisage sold property prices working to assist a downsize. Whether or not younger people who currently see themselves downsizing will actually do so is harder to assess, especially given that emotional attachment to a home often increases over time.

3. If you're downsizing to free up cash, what is that cash for? And will downsizing free up enough cash for you to put your plans into action?

While the most frequent use for cash freed up from downsizing is perhaps to fund retirement costs, especially in light of an inadequate pension, people also choose to downsize for other financial reasons. For instance:

- to put children through university;

- to pay off debts;

- to provide younger family members with financial assistance - for example, to help them buy their own first home;

- to buy a buy-to-let property or a holiday home in the UK or abroad.

4. What are the alternatives to downsizing?

Alternatives often depend on the reasons for considering downsizing in the first place. If it's to fund retirement plans, equity release is often touted as a viable alternative. If you're considering it, it's essential to get appropriate professional advice. Equally, the wish to fund children through university is understandable, but before committing to this, it's a good idea to ensure you know what state help in the form of loans is available and how and when the repayment demands are levied.

5. Will you be able to find a suitable property to downsize into?

Unfortunately, there's no real answer to this question. So much depends on when you're moving, where you're moving from and to and what the property market is doing at that time. While sold property prices generally work in favour of downsizers, this isn't always the case, particularly for anyone looking to move from a considerably cheaper part of the country. You may also encounter difficulties if you're trying to sell in a slow-moving market and buy in a fast-moving one (or vice versa). While some people may be comfortable selling and then renting while looking for their onward purchase, this isn't a solution that will work for everyone. It's well worth taking time to explain your needs to local estate agents in the relevant areas, as judicious enquiries may throw up agents who are more used to assisting downsizers.

Another related issue that sometimes vexes downsizers is the seeming lack of well-designed affordable homes aimed at their particular demographic. While some retiree downsizers are happy to move into purpose-built retirement complexes, others would not consider it or worry about the resale potential.

6. When is the best stage of life to downsize?

This is something of a trick question because the best stage of life to downsize is the stage when it best suits your needs. However, if you're contemplating making downsizing part of your retirement plans - and especially if those plans involve a geographical relocation - you may want to think about ensuring you make the move when you're still fit enough to make settling into your new environment as straightforward - and enjoyable - as possible. Adjusting to a new home in a new place without familiar landmarks, activities, friends and neighbours can be tricky for anyone but is frequently particularly hard for older or less mobile people. While there's obviously no magic formula, moving sooner than seems necessary may make it easier to put down roots in the your new neighbourhood.

Final thoughts

Before making the final decision to downsize, it's essential to work out what the process itself will cost you in financial terms. Estate agent fees, legal fees and moving costs can take a sizeable chunk of the money realised by the sale. So too can any necessary renovations on the new property. Ultimately, whilst downsizing can be a practical decision, it's unwise to bank on it as the answer to all your financial needs. As is so often the case in the life, having a back-up plan is sensible.

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