While retirement may still be slightly out of reach, you’ve likely started thinking about your financial plans and preparing for your next milestones. Part of this process may include downsizing and purchasing a retirement home.
In this article, we explore the options available to you in later life, considering the ideal time to downsize. We also provide an introduction to alternative options when downsizing isn’t right for you.
Downsizing
Downsizing to a smaller home can reduce costs and release equity, enabling you to focus on an enhanced lifestyle, without taking on debt.
For many, retirement living brings new freedom to explore passions and embrace new hobbies. Fulfilling an aspirational lifestyle in retirement can trigger new financial pressures. One of the most popular financial priorities amongst homeowners aged 55+ was travelling. 15% of homeowners revealed that the reason for releasing equity was to fund travel and execute ambitious holiday plans.
While 70% of those with large family homes are reluctant to move and may be more inclined to take on a later life mortgage, 30% of ‘empty-nesters’ are considering selling the family home now that children have flown the nest.
Beyond the benefit of downsizing to fund retirement, choosing the right time to do so may offer its own set of advantages.
Buying Your Retirement Property Before You Retire: Is It Wise?
Some retirees do prefer to purchase their retirement property before leaving full-time work, to utilise their stable income, maximise affordability, and gain a stronger mortgage position.
Providing that you do not plan to occupy the property immediately, you can consider the potential of earning rental income by becoming a landlord or setting up the home as a short-term let, such as an Airbnb, which will help offset mortgage payments.
Purchasing a second property with retirement in mind is also a great way to reduce the emotional turmoil associated with selling the ‘forever-home’. With a second property, you can gradually adjust and make the move less stressful once retirement has arrived.
There is also a clear supply gap in later-living homes, retirement communities, and purpose-built retirement houses. To put this into perspective, the UK government highlighted that an estimated 30,000-50,000 new later living homes must be built each year to meet growth, but only about 7,000 of these purpose-built homes become available each year.
Even preparing early and showing interest now, properties may not become available until much further in the future.
When a financial situation does not allow you to purchase a second home, there are still many benefits from post-retirement downsizing.
Post-Retirement Purchase: Greater Clarity, Less Pressure
Waiting until after retirement may be a smart move. Given that your priorities shift after you’ve fully embraced retirement, waiting until post-retirement will enable you to purchase with a full perspective of your actual requirements.
While modification of homes and paying for home improvements are a top financial priority for 12% of all homeowners, just 5% of homeowners over the age of 55 agreed. This is a clear indication of changing needs once entering later life. That said, healthcare and accessibility requirements are unpredictable.
If there is any uncertainty about where you would like to settle, it is also better to wait until your plans are more concrete before committing to a property.
Key Considerations When Choosing a Retirement Home
Regardless of your timeline, choosing a retirement property is a highly personal decision. We’ve outlined a checklist for you to refer to as you begin to assess if a home is suitable for retirement.
Location and Lifestyle
Considering a closer proximity to family, friends, and healthcare services allows for changing support needs and ‘at-home care’, as mobility declines. But while you remain active, having access to green spaces, leisure facilities, shops, and transport links all adds value to your lifestyle.
Property Type
There are just 2.5 million bungalows in the UK; however, demand far exceeds supply, with over 38% of older adults wanting to move into a single-storey home or bungalow when they next move.
58 % of respondents to a survey in April 2025 revealed that they value retirement bungalows primarily for their single-storey layout, while nearly 48 % commented on easier maintenance. 41 % believed it supports independence.
Room Requirements
Spare-room Ownership and Usage by 55+ Households
Even in retirement, many will continue to benefit from a dedicated space for hobbies, family who are visiting, or a home office.
2000 homeowners aged 65+ were asked about spare rooms in their homes. 87% had at least one spare bedroom. And 51% of households had two or more. Just 18% of these households said they had not used the space in that given year.
Those 18% could have taken inspiration from the increasing number of over-65s who are renting out their spare rooms, earning them up to £7500 per year in tax-free income to boost the retirement fund.
Financial Factors
The final consideration is focused on your financial plans. The most suitable approach, either purchasing outright or using a mortgage, is likely to be based on your personal circumstances. Though a lifetime mortgage will not require monthly fees, a retirement interest-only mortgage will have ongoing costs, so will any maintenance, service charges, and potential care fees.
Futureproof your estate by seeking legal advice regarding any inheritance and resale restrictions, especially for specialised retirement properties.
Risks of Downsizing
After exploring the benefits, it becomes clear that moving to a smaller property can release capital and reduce retirement living costs, but it is not without challenges. As an FCA-regulated mortgage advisory and member of the Equity Release Council, we have a duty of care to explore all of the pitfalls.
Emotional and Lifestyle Impact
The family home may have emotional attachments, especially when memories have been made and new chapters written within the bricks and mortar. It can also be hard to accommodate precious belongings or guests and family visiting, which is why a spare room becomes valuable.
You’ll likely have spent time becoming familiar with neighbouring houses, community hubs, and transportation. These factors all contribute to a sense of safety, which you may not be willing to part ways.
Hidden Costs of Moving
Moving house does come with significant upfront costs, including estate agent fees, legal fees, removal expenses and stamp duty. The financial gain from selling is reduced after taking these costs into account.
Limited Suitable Properties
As the data supports, there is a clear lack of supply to meet with demand for retirement housing. Finding a property that meets your requirements in the preferred location is challenging.
Future Flexibility Constraints
Downsizing could reduce flexibility later in life. After using the proceeds from your move, it could be difficult to make further adjustments for further changes in circumstances.
Tax and Benefits Considerations
Means Tested Benefits
Releasing capital through the sale of an existing property could affect your eligibility for means-tested benefits or care funding assessments.
Stamp duty
If buying a second property while you still own your current home, this would trigger the additional rate of stamp duty for the purchase.
Funding Retirement with an Equity Release Mortgage
Downsizing is not the only option. There are alternatives to selling your home in later life.
It is important to be aware of the available options and evaluate which is the most suitable for your unique circumstances. Among homeowners aged over 50 who were considering releasing equity, 34% considered downsizing instead of borrowing to fund retirement living.
Just 6% looked into equity release mortgages. But of those who did proceed to release equity in 2024 Q3, over 99% of homeowners did so with a lifetime mortgage, making it the most popular type of equity release product.
When a Later Life Mortgage May Be More Appropriate
For some individuals, a later life mortgage, such as a Lifetime Mortgage or Retirement Interest-Only (RIO) Mortgage, offers a more suitable solution to access property wealth without sacrificing their home or lifestyle. There are several key draws to a later life mortgage that address the considerations of downsizing.
Downsizing vs Later Life Lending
Weighing Up the Most Suitable Approach to Equity Release
| Feature | Downsizing | Later Life Mortgage |
|---|---|---|
| Emotional impact | High (loss of familiar home) | Low (stay in your home) |
| Upfront costs | High (stamp duty, fees, moving) | Low to moderate (arrangement fees) |
| Flexibility | Limited once proceeds are spent | Flexible borrowing options available |
| Long-term affordability | Lower outgoings post-move | Interest can accrue over time |
| Inheritance implications | Proceeds available for heirs | Reduces estate unless repaid |
| Control over property | Must sell, possibly compromising | Full ownership retained |
Specialist Support for Homeowners Aged 50+
If you find yourself in a position where you think downsizing is not suitable, you could explore a later life mortgage, which would allow you to retain your current home, avoid moving stress, or access wealth flexibly.
Speak to a later life mortgage specialist, who can discuss your circumstances and support you in making an informed decision.
Please note: a mortgage is secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. For Later Life Mortgage options, to understand the features and risks, always obtain a personalised illustration.
