‘It’ll be a massive saving’: why more people in the UK are downsizing home

When Richard Wise* moved from London to Margate in Kent three years ago, he did not expect to move again any time soon. But the music industry manager and his partner are planning to downsize from a four- to a three-bedroom property after their mortgage rate quadrupled.

“After Liz Truss’s bombshell [the September 2022 mini-budget that led to rising mortgage rates], our mortgage repayments doubled last year,” the 40-year-old says.

Although the couple had access to an inheritance, which they used to pay off some of the mortgage, their increased monthly outlay – the rate jumped from 1.09% to 4.9% – put a strain on their bank balance.

“We thought we could ride it out but think it’s going to be safer to downsize,” he says.

Their house went on the market in March, although Wise feels bittersweet about this. “It’s horrible; I feel a bit sick. We’re very fortunate we have the option to do that but I’m just going backward and forward thinking if this is the right thing for my family. My daughter said she didn’t want us to sell.”

However, he says they will only move if it will bring financial relief to the family. “We’re only doing it if there is a huge saving; it’s not worth it otherwise.”

Ever since that notorious mini-budget sent mortgage rates soaring – in July 2023, the average cost of a two-year fix peaked at 6.86% – and many have struggled to cope.

Although rates have fallen back – new two- and five-year fixed deals are now priced at an average of 5.81% and 5.38% respectively – many people coming to the end of their existing deal are still seeing their mortgage costs leap. This has prompted many to take a hard look at ways to lower their costs, with one option being downsizing.

This includes Sophy Dale, 50, a copywriter who moved with her husband and daughter from a three-bedroom to a two-bedroom flat, both in Edinburgh, in March.

“We’re significantly cutting our mortgage loan amount, which means that whatever happens to the rate, we should be fine,” Dale says. They have had to deal with some extra financial stress after she was left with a mild traumatic brain injury from a fall in late 2021 that means she has to limit her working hours to four a day.

When their fixed-rate mortgage ended, the couple moved on to a tracker deal that set them back £750 a month. Their new five-year mortgage in their smaller home is costing them £330 a month.

As is the case with Wise, the aim is to cut bills and reduce the potential for financial stress. “It’s more a fear of what could happen,” Dale says. “I was a teenager when mortgage rates went crazy … and so I’m worried about those kind of scary figures and [rates] going out of control with the current government. With everything increasing, it feels like one piece of the puzzle we can have control of.”

With a lower mortgage rate, she says they can see the light at the end of the tunnel in terms of eventually paying it off. “Even if mortgage rates go sky-high, we would still be able to manage to pay, whereas with the larger mortgage, if the rate was to go up to 10%, it would obviously have a much bigger knock-on effect, and because my working hours are limited, I wouldn’t necessarily be able to find a way round that.”

A 2023 report from the comparison site Confused.com found that the biggest gain from downsizing, based on property values, was made by going from a four-bedroom to a three-bedroom property with an average price difference of £110,000.

Jason Webb*, 35, who lives with his wife and two children aged two and five in Westbrook in Thanet, Kent, is looking to switch from a three-bedroom property to a two-bedroom one after putting their house on the market a few months ago.

“With one thing after another, with the war in Ukraine, what’s going in the Middle East, energy issues, everything just feels more pressurising and volatile at the moment, and this is one element we can control,” he says.

“We’re kind of pre-empting any potential issues and getting things as financially good as they can be for the family.”

The physiotherapist says they are looking for houses priced at approximately £40,000 less than the value of their current property, and adds that moving to nearby Birchington would also save on transport costs. He says that with food prices rising and high energy bills, “we want to create more of a buffer and have more for emergencies or if things get more expensive”.

But what about the costs involved? The average cost of moving home is about £15,000 once you add up things such as estate agents’ fees and removals – and depending where you live stamp duty will be an important part of the calculation. There may also be mortgage fees to pay.

Many would argue that almost as important is alleviating the mental strain that the extra financial burden caused by higher mortgage rates and the cost of living crisis has placed on households.

This is why Wise believes that, despite all the associated costs of moving, downsizing will still be worth it.

“It’s a long-term plan for the future,” he says. “It’s not going to be immediate savings as we’re going to have to port the mortgage, so we won’t save in the next year, but this is about the future – it’ll be a massive saving.”

In addition, it will help with his overall wellbeing: “It’s also about mental health and stress.”

The pros and cons of downsizing

Brokers are reporting a growing number of inquiries from homeowners considering downsizing or first-time buyers opting for smaller properties as a way to keep mortgage costs down. But is this a good financial move? We spoke to experts about the pros and cons.

“In prior years, when interest rates were very low, it seemed the norm for first-time buyers in particular to buy a larger property than their needs dictated,” says David Sharpstone, a director at the mortgage brokers CIS Mortgage Advice.

“Now that we’re in a period of higher interest rates compared with the past 13 years, I’ve definitely seen a trend for homeowners downsizing to reduce their mortgage payments, and first-time buyers purchasing smaller properties, or even flats rather than houses.”

The mortgage adviser Simply Lending says it has received double the number of downsizing inquiries in the past six months. “This has been led by clients coming out of fixed deals and being faced with a monthly payment they are unable to afford,” says David White, its chief operations officer.

However, he warns that this might not necessarily produce the financial blessing that people expect. “Although downsizing frequently alleviates the financial strain, given persistently high interest rates and property prices, clients often find the relief from downsizing less substantial than anticipated.”

Karen Noye, a mortgage expert at the wealth management firm Quilter, says rising mortgage rates have made more people think of ways to unlock cash and lower their outgoings. “Even though mortgage rates have gone down, we have seen people see their new payments skyrocket. This inevitably leads to thoughts of downsizing.”

However, she says anyone considering this should ask themselves if they are moving to save money or to survive this tough period. If people have calculated that they won’t be able to afford their mortgage payments on top of high food and energy bills, then they need to downsize and unlock some equity and achieve lower monthly costs.

“How much you downsize by will be influenced by your specific circumstances and how much room you need to accommodate your family,” she says. “Moving home comes with costs like estate agent fees, legal costs and stamp duty.”

However, if you are considering downsizing as a kneejerk reaction to the current economic climate, it is important to think through your options.

“Your house is typically your most valuable asset, and leveraging the equity in it and downsizing when you get to retirement rather than downsizing early can be a crucial element of your retirement provision,” Noye says. “Therefore, pressing the downsizing button too early in your life if it’s not absolutely necessary can make you worse off financially in the long run.”

She adds that downsizing “is a short-term solution to potentially a short-term problem if rates start to come down later this year. Before you downsize, it is important to look at your finances holistically and see if there are any areas where you can save before you consider this.”

* Names have been changed