It’s likely that at one point as your time as a homeowner, you’ll consider downsizing. Whether you’re retired or an empty nester, wanting to free up some cash or want a home that requires less maintenance, moving to a smaller property can seem like the answer. But there is more to moving to a smaller property than simply moving. There are often unseen costs involved that can eat up any potential equity released, which may affect whether you think downsizing is the right thing to do. Weighing up the financial side of moving to a smaller property is vital in the decision-making process to ensure you are making the right decision.

Stamp Duty

If you’re a UK homeowner, you’ll know of the stamp duty tax. But here’s a reminder just in case – the Stamp Duty Land Tax (as it’s officially called), is the tax paid on the sale of a property in England, Wales and Northern Ireland (in Scotland, you’ll pay Land and Buildings Transaction Tax instead).

Not everyone pays Stamp Duty. It is only paid on homes worth more than £125,000, so if your property is worth less than this, Stamp Duty will not affect you. On properties with purchase prices of £125,000 and up to £250,000, you will pay a tax rate of 2%. Above £250,000 you will pay a rate of 5%, and so on.

This can often be one of the biggest costs that affect whether people can downsize or not. For example, if you have a house worth £270,000, you will pay £3,500 in Stamp Duty tax, which is just one of the costs involved with downsizing. If you want to find out more about Stamp Duty, check out our helpful guide which covers everything you need to know.

Agency fees

Estate agency fees are another factor that can cut into the profits of moving to a smaller house. The good news is that agency fees for selling a property can vary.  According to Which? the average estate agency fees for selling a property is 1.42% (including VAT). This means that for a property worth £270,000, you could pay around £3,834 in agency fees, if not more.

On top of the Stamp Duty, this means that for a property valued at £270,000, it would already cost £7,334 to downsize without considering any other costs.

The small print

There are additional smaller fees to take into account when considering downsizing your property. These are as follows:

Legal fees

Conveyancing fees, or legal fees, cover the amount that you’ll pay to make sure the legal side of a house sale or purchase is handled correctly. It covers all of the legal and administrative work associated with transferring the ownership of properties and can set you back an average of £850-£1,500 including VAT at 20%. On new properties, there is also a homebuyer’s survey that is carried out, which can start from around £300.

Mortgage fees

There is a variety of mortgage fees that apply when you downsize. They can apply to your old property if you have some of your mortgage loan outstanding, as well as your new property if you are beginning a new mortgage loan. These fees can vary depending on the property that you are downsizing from and the new property that you are moving to. For more information on the fees that you will incur when you take out a new mortgage, read our guide on mortgage fees when starting a new mortgage.

The moving day

Before you make a final offer on a new house you will need to have it assessed by a surveyor. This is to flag up any structural problems with the property and is often requested by most mortgage providers. The cost of a structural or building survey can range from £550 to well over £600 depending on the value and size of your property. As well as the surveyor fees, there is also the costs with moving house.  Then there is the cost of physically moving from one house to the next. The removal costs for a three-bed home can come to around £900, while professional packing will cost you another £300. But the overall cost will depend on where, when and how much you are moving.

Maintenance and improvement

Often, the one cost that is forgotten in downsizing is the expense of renovating, repairing and redecorating. This applies to both your old home to make it ready to be put on the market, as well as improving your new house. This can set you back a further few thousand pounds, especially if this includes buying furniture for your new property.

EPC

An EPC (Energy Performance Certificate) is a compulsory rating on a property’s energy efficiency, rated from A to G. If your old house does not have an EPC or it is due to expire, then you will have to pay for it to be reassessed. This can typically cost between £60 and £120 although the cost varies depending on assessor.

The verdict

While downsizing could seem like the right decision – whether it’s because you want to live in a smaller house or have more disposable money – the total cost of moving to a smaller property can come to a significant amount. When considering moving to a new house, it is important that you do your research beforehand and work out how much it’ll cost you so that you are not hit with any unexpected fees or nasty surprises.

Moving home can be very exciting. Whether you’re moving in with a partner, looking for a bigger property as your family grows or downsizing after the children have left home; buying a new home is the start of a new chapter. 

At IMC, we know it’s important that our clients understand every step in the moving process. That’s why our expert team offer informed, up-to-date advice and explanations on the financial landscape so that they can be sure that they won’t receive any unwanted surprises. Meet our professional team to find out about how we can help you with your financial future.