Selling your house to fund retirement – is it a good idea?

Is selling your house to fund your retirement a good idea?

As the reality of retirement approaches, you may be looking for ways to boost your retirement income. Cashing-in any assets you may have can be a great way to do this, but should that include your home? This guide will look at the pros and cons of selling up, and what you need to think about if you’re considering it.

Why might you consider selling your house to fund retirement?

If you own a property, it’s likely to be your biggest financial asset. This can be a great help as you approach retirement and begin to think about what your income will look like after you finish full-time work.

Many people find, as they approach retirement, that they begin to reassess what they need in a home. Perhaps the large family home and garden that once felt so desirable is now starting to feel a bit too big and tiring. Perhaps your children have flown the nest and now you have several spare bedrooms that get little use. If you have equity in your property, selling it could improve both your financial situation and your lifestyle.

What are the benefits of selling your home to fund retirement?

There are several benefits of selling your property to help fund your retirement.  

These include:

• Releasing a substantial sum
  Selling your house and downsizing to a smaller home for retirement has the potential to release a significant sum. This money can be added to your pension pot or invested elsewhere to provide an additional retirement income . Purchasing another, smaller property means you will still have money invested in an asset. This can be released at a later date, if needed. Alternatively it can be left as an inheritance to your loved ones.

• Reducing your monthly household bills 
  Downsizing to a smaller home is likely to reduce your monthly household bills. This extra cash can either be put in the bank or invested to provide a passive income.

• Spending less on property maintenance
  The cost of property maintenance can quickly add up, especially in a large or older property. Moving to a smaller, lower-maintenance home could have a big impact on your financial security in later life.

What might be the downsides to selling your house for retirement?

Making the decision to move won’t necessarily be easy, even if you think it makes financial sense. You will, no doubt, have many happy memories in your current home, and you may feel torn about the idea of leaving.

If you’re considering selling your house and buying or renting something smaller, it’s important to think through any decluttering that might be required. If you’ve lived in your current home for quite a few years, you might be surprised at how much you’ve accumulated.

Although decluttering can feel like an intimidating task, it can have a positive impact on both your financial situation and your mental health. There is a strong market for second-hand goods and furniture, as more people strive to be economical and environmentally conscious. Any profit you make from selling unnecessary items can also be added to your retirement funds.

Starting to declutter before you begin looking for your next property will help you to think about what you want and need in your next home, both in terms of size and lifestyle.

What else should you think about if you’re considering selling your house to access the cash tied up in it?

• How much equity would I have access to after the cost of moving? It’s important to think about how much equity you have in your property and what would be left after the move. You’ll need to consider things like conveyancing fees, removal costs and estate agency fees.
• Do you want to stay in the same location or move to a new area? Many people dream of moving to the coast in retirement. Perhaps you’d like to be closer to friends or family members. No longer tied to a certain location due to employment, retirement offers an opportunity to consider relocation.
• Do I want to consider a purpose-built retirement property? Retirement properties can offer several social benefits. Some may also be able to provide additional support should you require it in the future.

How else can you access the equity in your property for retirement?

If you’re concerned about not having enough retirement income, and are a homeowner with equity tied up in your property, there are several ways that you can use that equity to ease your financial worries. Selling your home to fund your retirement is just one of your options.

If your concerns are purely financial, and you’re keen to stay in your current home, you can look at property equity release in the form of a lifetime mortgage.

The main benefit of using a lifetime mortgage is that you don’t have to move out of your home. However, it is important to remember that you will pay interest on the money you borrow via a lifetime mortgage. Interest rates on lifetime mortgages are usually significantly higher than the interest rates applied to a standard mortgage. As with a standard homeowner mortgage, the more you borrow in relation to the value of the property, the higher your interest rate will be.

You can either choose to make monthly repayments – as you would with a standard mortgage – or let the interest accumulate. If you choose to let the interest accumulate, the loan will be settle when the property is sold. Monthly repayments will be an extra cost to consider in retirement, when income is usually significantly lower. Alternatively, leaving the interest to accumulate will have a big impact on any inheritance you are hoping to leave.

Whether selling your house to pay for your retirement is a good idea will very much depend on your individual circumstances and financial health. It can help you access the cash tied up in your home. This will bolster your retirement income, but any house move is a big step. It’s important to consider all your options carefully and seek independent financial advice if appropriate.

Find out more about:

• UK property market predictions: will property prices rise in 2025?
• What paperwork do I need to sell a house?
• Japanese knotweed and other garden ‘red flags’
• Paying off an interest-only mortgage
• What is modern method of auction?
• What is gazundering?
• Should I get a property survey when I buy a house?
• What is a structural survey?
• When was my house built?
• What is a memorandum of sale?