People could cut housing costs to retire early

[ThoughtsQuestions]

The statement is "people could cut housing costs to retire early" but I'm not sure how much I believe myself and trying to figure out my priorities.

Here's my situation for context;

I paid off mortgage on a very small home in my late 30s. It's a safe area, close to shops and a park. It's cheap because it's small and not a fancy building. My living costs are quite modest because I don't need to pay for housing. But in some ways, I'd love to live in less cramped conditions

Our annual family income (pre-tax) is over 50% of the value of the house. People on a similar income live in much bigger places, with a big mortgage.

I changed sectors and pay went up more than expected. The big pay feels temporary, ie if I stop working, I doubt I'd be in the position again. But I don't get enough time with my young kids

I'm weighing up my priorities at the moment.
Pros : financially free, could retire early if trajectory is same for a few years.
Cons : work's very stressful for the high pay AND we have a v small space to bring up kids. But really the kids don't notice, yet!

Lots of questions.....
Is a home that's much cheaper than you can afford worth the freedom it enables?
Curious what others would do, I notice the mismatch in finances + stress + free time vs the quality of our living accommodation compared to the norm?
Have you been in this situation and gone through this phase? What did you think in retrospect?
Why are so many older people living in such valuable homes and not making this trade off? I always assumed that if your house went up by so much money (those in detached homes in SE worth close to or way over £1m), people might cash out more. Especially as children moved out.

We live in a house that, in my opinion is too big for what we need. I would happily downsize to a smaller house, have a smaller mortgage - but I wouldn't use the extra money to retire early. I'd use it to travel with my children and make memories, enjoying it all while I still have my health. I'd work less hours if I could rather than stop working - for a bit of balance.
There's also definitely something to be said for a smaller space and less stress - there is less space so therefore you'd have less stuff, less clutter, less maintenance - less cleaning etc.
I imagine it would encourage a lifestyle that places less value on material things and more value on experiences and memories - which is what life is all about!
If you feel quite cramped though, a compromise of somewhere with a little more space to feel more comfortable but also not being too expensive could be considered.

We were in your position with two kids towards the end of primary. Enough savings to pay off mortgage but chose to move to a bigger house in a better location. What feels small now will feel even smaller when the kids are a bit older, when they start needing their own space, when they no longer want to be attached to you or in the same room as you, when they no longer want to (or can) share a room, when start having friends over and sleepovers or even needing enough space to put all their belongings. It has worked wonders for my mental health to have the space we need and to be in a better area. We are too young to retire and frankly the value of the house is not a consideration for us at the moment as we are living in it so how much it is worth makes no difference. It will be an asset one day for the kids which is also a reason to have the bigger/more valuable property.

I can tell you the quality of life has improved immensely for the whole family so for us it was worth it. Work is stressful regardless of what you do.

I think the smaller house retiring early only works if you are saving or investing the money you would have used to pay a bigger mortgage. Otherwise you pay off your mortgage and still find all the other bills are a lot of money so you need to keep working.

I think the gamble people are making with a bigger house is that they 'invest' in the house and use the house for a nicer life day to day, then have in the back in thier mind they can sell up and downsize to release the investment.

I think many dont as downsizing costs more than expected, moving is stressful and they think i just spent 25 years paying for this is want to enjoy it. And its a risk that house prices crash.

We moved from the first place we bought in my early 40s. The reason for the second move was to reduce the commute i.e. quality of life. Mortgage paid off in early fifties. I want to move again when I retire to somewhere more suitable in older age. Cost of moving high so had hoped to achieve that with second move but failed to find somewhere suitable.

Only you can determine whether the push of your current living situation is worth moving for. However, you do get more interested in trying to achieve being able early retirement the older you get. It isn't so much wanting to retire as much as having the ability to do so should it get too hard to work into late 60s.

We live in a 3 bedrooms 3 reception rooms house, sounds bigger than it is. Owned it outright from early 50s, our money then went to putting 2 kids through uni at the same time. Now our friends with huge houses struggle with the cost of uni so I’m glad we prioritised
paying our home off.

I agree, especially regarding older people. It honestly baffles me why they choose to live in poverty in big houses they can't afford ot heat or maintain when they could just downsize and live a much easier life.

Once you have moved to a larger house , got used to the space and its quirks, got it set up to suit you , made your memories and spent your best days there moving out somewhere smaller seems almost impossible - the hassle , the change, the costs , the upheaval. Your home is your safe space and as you get older that matters more and more

Spending a year marketing a house , finding somewhere new and paying someone to make all the changes to decor to make the place feel like home , when you may only have a handful of years left ? Seems daft.

And bungalows are in short supply and surprisingly expensive so that downsizing to a bungalow doesn’t leave you much change for a lot less space

the time perhaps to move down is when you retire - only if you are in a couple then it’s also the time one of you is getting cancer treatment or suffering some major health problems- not every couple goes through this but I had been horrified by just how many of my friends get to retirement age with major problems . It’s shaken up how I approach life

my personal approach has always been “it’s big enough” - it’s medium small, it’s not detached ,it’s not south facing ( thankfully ) , but we have space for everything. And no I don’t want to move to a pokey retirement flat when I still am living life thank you

Not sure how relevant this is but: we downsized to a small 2-bed semi to release money for children's deposits. We have saved a bit of money since and can't wait to upgrade to a 3 bed detached, like we used to have! Storage is the main problem, but also not being able to have a big table and an empty room for hobby stuff, etc.

Sometimes they can't face it, feel overwhelmed.

My paid off house is worth almost 400k, we retired in our fifties. I live in quite a deprived Northern town, ex mining area.

If my house was where DH grew up in Surrey it would be pushing a million and my South-coast home town probably about 700k.

We are actually going to relocate around 30 minutes away as house prices are even cheaper. One of the main reasons is there are no fast train lines but as there is no more commuting as DH and I occasionally had stuff in London and he was always needing to fly from London we simply don’t care anymore.

We don’t want a huge house but it will possibly be bigger as if we do live to a great age we want a house with a downstairs bathroom, bigger drive and a slightly bigger garden with a better view. We are really after a better layout. I really don’t want a bungalow as we like to sleep with the window open and I do not fancy that on the ground floor.

In answer to the actual question we stayed in a smaller house so we could retire early. I have now been diagnosed with angina, honestly 2 of my friends dying when we were all 54 and DH mate dying at 38 spurred us on to retire early.

@TheQuirkyMaker That was remarkably generous of you.

@ThoughtsQuestions You are nowhere near high point expenses for dc! Teen years cost and dc might want and need more space. I’d move to somewhere with more space for dc as you are there so much! Being cramped is surely no fun.

Retiring early sounds fairly impossible for you. University is very expensive. The minimum loan is under £5000. Cost of housing and food is nearer £11,000. You will make up the difference every year if you are on decent salaries. If you are on a low wage, dc get full maintenance loan of £10,500. So you will have choices to make in your 50s.

I’ve always enjoyed our house. We don’t enjoy lower quality housing but could afford better to give us some space. You don’t value this but you need to have a much better grasp of teen and uni expenses because you might need to start saving! Plus pension saving is usually out of non taxed earnings. It’s tax efficient. So you should look into this too.

DH and I borrowed less than we could have to buy our first home together. We wanted children and to be sure we could manage on one income. In the event the children did not materialise but we paid the mortgage off early, I was able to retire at 58 (early severance package) and we are still happily here in our three bed semi to which we have added an extra room at the back and converted the garage into a home office/woman den.

Is it a genuinely small space or can you declutter or work to the space you have? For example, do you have 2x wardrobes worth of stuff in 1x wardrobe of space? 2-3 sets of bedding or 20?

I'd consider how long you can live in a small space for. If you are mortgage free and looking at a house that costs 1k a month in mortgage, start putting it aside now. Is that comfortable? Ultimately 1k in savings earning interest will work harder for you than 1k on a mortgage where you're servicing a debt on a house (that you think won't increase in value).

Saving 1k a month for 3 years until kids move school would give you 36k towards moving or uni fees (without interest).

And consider how long you need the bigger house for if kids are moving out for uni.

But also think about why you want to retire early. Could part time or alternative work be an option in the later years? Do you just hate your job now and see retirement as an escape or are you wanting to raise grandkids?

I have never really understood why I should want to up my housing costs in line with salary. DH and I bought out 3 bed house with manageable sized garden when we were each on around £22k a year and the mortgage was around 1/3 of our take home salary. now our household income exceeds £150k, we have no mortgage, we are able to save a significant amount each month and enjoy a few luxuries. Our house has tripled in value and if we ever needed to we could extend into the loft or on the back.

we absolutely could sell up, put £150k down as a deposit, take out a £300k mortgage, buy somewhere a bit bigger or in a more affluent area but it wouldn’t drastically improve our lifestyle and would drastically reduce our financial freedom.

With our savings and our mandatory outgoings at this point either of us could lose our jobs and we’d be fine for a couple of years before it became an issue.

Mine were never that bloody expensive. Didnt have expensive clothes, often chose stuff to wear at bootsales , not avid followers if fashion lol. Only one took school bus the other 2 could walk 10 mins up the road. I got unwanted computers/ laptops and upgraded them with spare parts. Phones were never more than about £80 even if new. Often bought secondhand from people who " must have the latest" despite nothing wrong with the ones they had

They all had part time jobs for their luxuries and tbh at uni was cheaper for me than them being at home. Sent a huge box of basic foodstuffs at start of each term and they paid gor the rest themselves

As adults they still look for value in everything they buy/ do rather than throwing money around unneccesarily. They also grew up in an affluent town in the south east so plenty of friends who lived luxury lives

Days out, holidays, meals, travel to and from uni, uni living costs as the basic loan doesn't really even cover accommodation, learning to drive, things they need for their hobbies and interests, costs of extra tutoring and educational supplies - revision books etc. Then they start wanting and needing friends to come with them. Etc.
They're considered an adult for most purposes at 16, for prescriptions it's 18 but the cost naturally falls to parents.

You’re incredibly lucky to be able to live in an area where a house costs less than twice a standard dual income.
That’s not really a situation where you downsize to release wealth. Those people will be the Londoners etc who can move to cheaper areas or those who have far too much space when DC leave home.

The current state of property market in most of London and SE is depressed owing to higher taxes eg Stamp Duty and the increase in Council tax by 75% over next 3 years in places like Westminster - now Labour in charge there. Flats are not selling well at all in London especially newer ones with cladding that has not been replaced so long after Grenfell, These uncertainties and new taxes tend to make people stay put in many cases.

I think there's a trade-off for most people - but that the choice isn't as stark as it is for you because you're mortgage-free, which is so unusual at your age. We have talked about moving to get more space, but don't want to either increase or prolong our mortgage payments. But either way we have to pay a mortgage - so I can see why someone might decide it was worth paying a few hundred a month more to have the nicer house.

Also, it sounds like you live in a very cheap area? You say: Our annual family income (pre-tax) is over 50% of the value of the house.

Where I live, you literally couldn't buy any property for twice our (decent) annual salaries. So again, it maybe feels like a more stark choice to you - you have the option of spending very little of your income on housing. We don't - the choice for us is to spend a lot of our income or loads, so the trade-off for the smaller place feels less immediate.

IMO, pensioners tend not to cash in on their property values and downsize because the place they are in is HOME. Not just a "property". That matters.

We have an option now - buy mortgage free. 4 bed house on a nice estate with medium garden. Might need to do a bit of work but not a priority and would have the money almost immediately to do it. There is a house in mind. Or take out a mortgage for a potential (none yet on the market but may be) bigger house, bigger garden, not on an estate, potentially 20 yr mortgage if we went large or 10 yr if smaller. Repayments 1500 per month min. Not sure. I am coming round to having a less prestigious house and more fun!! In your position I might go halfway - move and take out a small mortgage but one that's probably doable to be paid off by 50.

I mean bloody lucky to have this dilemma.

I won’t downsize from my large family home, spent over 20 years getting it exactly how we want it, it’s in town so fab location for all amenities, plus if I did want to downsize it would be to a detached bungalow, which would cost the same as my house, when you take into account the costs of moving, stamp duty, the inevitable refurbishment costs which are now huge it would be financial suicide for my retirement, much easier and cheaper to pay for a gardener and cleaner if needed when the time comes. Downsizing with vast equity left over isn’t always a given unless you move from and expensive area to a cheaper one.

Many many dc return home after graduating. I don’t know a soul who has downsized when dc gone to university. They come home and often don’t earn enough to rent. The days of parents not offering a home to their graduate dc is long gone.

Could you get something medium sized that suits, no need to go from small and cheap to large and expensive. We just have a very average 3 bed detached which was just right with having the one DC, and still fine now we have retired.