Future proofing- downsizing now in our 40s or wait

[Ugutff]

I will preface this with, I grew up in Europe and would love to get feedback from Brits on what makes most sense.

We are both in our 40s and have one primary school age kid. All this talk about recession and rising interests got me worried.

We live in London in a four bed house which we bought assuming we'll have another kid but that never happened. But we still owe 400k on it and are clearly not getting any younger.

Would it be totally silly to downsize now to a two bed flat and cut our debt?

Friends have pointed out that people usually do that when they are older and often to release equity. Because we moved to London in our 30s, we never got a chance to buy when houses were cheap. At the moment mortgage is 50% of take home as we are overpaying.

Family back home all rent so no advice from them. What would everyone else do? Is this doom and gloom just getting to me? Or would it make sense?

As other PPs have said, don't move but look for ways to maximise your house's income.

DM over the years has created a small flat in top half of her house and rented it out, then a few years later added a shower cubicle and washbasin (not for this purpose) and rented this out to foreign language students (she preferred they were in London as meant they had a social life, were away from the house) for a few years too. She didn't necessarily need the money and as she's sociable and enjoyed meeting younger people from all over the world this suited her and my stepdad.

I've even rented out rooms in my 3 bedroom house (1 is a box room though) in the past if I need help with bills/want to save for something.

You're right about those costs. As I said the slight downsize to 3-bed will cost you too much cash for a minor reduction in monthly payments. Not worth it at all.

Where is London is your 4 bed? The appreciation depends on lots of contextual info such as the type of location and how desirable the property will be. Are you near good secondary schools? Green spaces? What's the commute like? And is there value to be added to your property or is it all "done" to the best it can ever be?

You are probably underestimating how much more space a teenager would need versus a small child.

We live in flats too (most do in London) so I do get that, but given the cost and upheaval I would still think it would make more sense to hold on till your DC leaves home assuming that you can afford the repayments, have secure jobs and like your area.

You have no idea what the interest rates will be in 2028. You could always sell then. Having 4.5k left over after paying a mortgage each month with one school age kid is more than healthy. Most people can only dream of that. If you've owned the house a while it's unlikely you'll be in negative equity ever. Rent a room out and use the money to make more overpayments. And get the lodger to clean their own room! You would be crazy to downsize right now.

I have pets which need a very large cage and DH wouldn't want it in our bedroom or reception and I can't put it in a nursery either so spare room is the way to go. I call it my office (work in office most days lol) and I tell DH I need space for an exercise bike (true), but really it's for my pets. But I do agree that we are happy in a flat. If I had one extra box room in my flat, I would never move!

@Edamamebeans we live in South East London so most people around us only stay in the area for primary schools and then move for secondaries. Our area is not fancy -hence our house is only 750-800k rather than the 1.2m people always quote on mumsnet.

Am assuming that as soon as 'nicer' areas like Dulwich or Clapham get cheaper - people would much rather move there than here

There are two bed houses around but they tend to have a smaller internal area than 2 bedroom flats. Most but not all 2 bedroom flats don't have gardens.

Also lots of houses that were 2 bed have been extended upwards (and some outwards especially if they have large gardens) so they are now 3 bedroom.

I should add I live in London and grew up here. It is and has always been very common for people to bring up children in flats. It's what people can afford, or are given if they live in social housing.

I should add people tend to wait until their children leave home permanently to down size which is why people downsize from their 50s onwards. However due to increasing numbers of adult children living with their parents it is now becoming more common for people not to do that.

@Ugutff ok. Are you keen to stay in your area? What are you planning to do about your DC's secondary school?

(I know SE London)

@Edamamebeans we will move - or downsize then and go private. Our local secondary for boys is rubbish

We lived in a two bed flat two years ago and honestly with one kid, how much space do people need really? Genuine question...
I guess it depends on your lifestyle but I live on my own in a 2 bed flat and often feel like I need 3 bedrooms......I have a double guest bedroom but I don't live close to family and many old friends so when they visit they come to stay for a few nights. But most of them now have kids too and when they were little it was fine to squeeze them onto an airbed on the floor but it's not big enough for them to do that as tweens / teens. And with the working from home thing I'd like a separate office space that I can close the door on rather than having my work stuff all over the dining table in the living room on the days I WFH.....but if you never have guests and go out to work every day you wouldn't have those struggles! I also miss having my own outside space and being able to just throw the back door open onto a garden when it's nice weather.

At ok, so you're definitely going to need to move at some point soon then.

One slightly left field thought...

Potentially could you let your home out? You would need to invest a small amount into your mortgage to switch your mortgage across to BTL. The rental yield would probably cover your new lower BTL mortgage repayments, tax due, and the rent on a 2-bed flat nearer to a decent secondary school.

The plus sides of this option would be you could retain your property as security and get your equity in the future. You could rent out a leasehold flat without the pitfalls of being the leaseholder.

You would need to stump up an initial investment in the BTL mortgage switch, and probably getting your home ready to let, but then buying a new home would cost you more in stamp duty and conveyancing anyway.

The risks of this option are that you would need to be confident of your home being tenanted regularly, as any void periods would cost you money.

It might be worth asking a local lettings agent what their opinion is about how let-able your house is and what monthly yield would be.

It doesn't sound like much of a life if you're stressed and 50% of your wages go on a mortgage, if you don't need a property that size you're surely better to enjoy life, travel, worry less, than pay £1000s every month in interest. On a smaller property you could potentially overpay as well and be mortgage free sooner. We stayed in our first house and overpaid so we had paid off our mortgage in 9 years, the freedom of not having that payment and responsibility is immense and while I would love a bigger garden or a utility room some days, I also love that we have a lifestyle that would never be possible with a large mortgage.

The advice I watched last night was if downsizing or selling up completely now is a good time as it's widely considered to be the top of the market for many many years, but if upsizing or getting on the ladder for the first time then try to wait it out.

I think your first step is triple check you can port your mortgage if you reduce it. If you can't that does change this.

If you can port but not reduce then I guess you bank the difference and use it to pay the monthly mortgage until it's used up - especially if you can overpay.

My friend was told she could port hers but when it came to it they said you can port but not at that internet rate 🙄

@RandomMess thats a very good point. We had asked previously but it probably makes sense to check

You'll miss the space and the garden. Especially with a teenager, they live to sit in the garden with their mates. It doesn't make sense to do anything now, because its been fixed until 2024. You're not struggling to pay bills and the mortgage if you're currently over paying. So I'd leave it as it is. It's better to downsize when your child's left home, because your house will have more equity. The longer you have it, the more it will be worth. We had a recession before, when house prices dipped. It didn't last that long. The housing market always bounces back.

Interesting dilemma. We are in same position as you although owe about £200k. 4 beds1 kid. We do use all our rooms though. Bedroom for us, tv room/ den and office / spare bed.

Our plan is to sell when DC leave home (so 15-20 years). We will then retire and downsize to flat and will give her the rest for her own property.

That's the plan anyway....

Teenagers take up more space - many people including me end up extending to make room for friends being over - it's not the number of bedrooms that's the issue, it's living space which flats rarely have enough of. There is a compromise of a 3 bed perhaps?

Why not wait until you get closer to the end of your fixed, things may have changed a lot by then (multiple prime ministers based on current trend!)

Those saying teenagers need more space... the OP's update was that they'll need to move area by secondary school. So the teenager won't be living in that house regardless.

Leasehold costs on a pension would not be something I would want to have to worry about. You never know when the freeholder may decide to do start the Section 20 process for major works. Yes you will be consulted but ultimately the work will be done anyway and you will be invoiced accordingly plus your usual service charges.

I'd try and stay freehold if I were in your position.

I think this two bedroom flats and then there’s two bedroom flats I’ve lived in a nice swan decent neighbours good sized rooms easy and quick to heat although with electric storage heaters garage space underneath and additional storage in there under the stairs cupboard parts that was absolutely fine.

unfortunately we then moved to one that was a converted house where the guys downstairs dogs were left unattended for eight hours a day and it sounded like a pack of wolves there was only two of them it sounded a lot more. Right next to a railway bridge so there was constant repairs being carried out through the night not to mention the fact that the trains were starting to slow down as they came into the station so they were breaking on the hour every hour.

I am now in a lovely three bedroom terraced an honest to goodness I will never move again money is utterly irrelevant versus peace of mind

Go in against the grain I would actually say that my teenagers take up a lot less space literally they are glued to their tech or watching TV or they are out, there’s no giant dolls houses, giant plastic kitchens taking up the whole of a living room or Lego sets being assembled on the breakfast bar.

You took the words out of my mouth. Our teenagers lived in their rooms like hermits, emerging only for long enough to empty the fridge! As long as they have their own cave room, they’re happy.

As I said earlier @Ugutff, the advice you’re getting is based on a property market that’s about to implode. Prices will go down, interest rates are going to go through the roof, add to that your stress and the housework load, and it’s a no brainer.

I would stay put in your situation with the fix. The costs of moving / refinancing would seriously offset the benefits right now.

But a word of warning: long term you are unlikely to see the housing market gains that lots of posters here seem to be presuming will happen based on the last twenty years. You really can’t project what has happened in the last couple of decades into the future. We’re about to go into a reversal of many of the factors that pushed prices up during the long boom. It’s quite like that you won’t see long term capital increases beyond this point.

Nevertheless, I would stay put and reassess in 2028 when you will have a better idea of what you intend to do about secondary school applications with your five year old.

We really dont assume that we'd make any gains on the house over the next few years. Rather I was trying to figure out whether and how much we'd end up losing. Higher interest rates should mean lower prices. My worry is that in six years time or so - it wont make sense for us to downsize to a two bed as our four bed will be a bit but not substantially more expensive than a two bed. I find it so strange that housing has become such a financial instrument in the UK. We simply don't have such discussions back home.

My worry is that in six years time or so - it wont make sense for us to downsize to a two bed as our four bed will be a bit but not substantially more expensive than a two bed.

That’s an entirely sensible and logical worry. Particularly given that your current house is in a relatively low value area.