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.

Could you consider renting out your place, and then temporarily renting a bigger place for yourselves. That means you keep your options open/a fall back plan, and keep the value from the home you’ve cared for for many years.

How can you "cash out" you still have to live somewhere?
The only way to benefit from an increase in property values is to downsize or move to a much cheaper area- which people either, can't ,because of work, or don't want to.
Older people can use equity release- but you only get about 2/3 of the value at most, and none goes to your estate, so you have basically handed over a third of the value of your home, plus the increase in the value of the property from the time of the release until the time of your death over to the equity release company.
For this reason it's mostly used to avoid care home costs, it isn't something you would do if you have anyone to leave the property to, or if you don't want to make huge amounts of money for parasites.
You would only do it if you were going to lose the money anyway in care home costs.

I wouldn't retire at your age. Enjoy your house while it suits you, but you may need to upsize as the kids grow. We were in a terrace for years. We could have afforded a bigger house but it was cosy, safe and we could lock it up and go away for the summer without thinking. Then all of a sudden the kids grew to our height and it felt overcrowded plus there was no private space to work from home so we moved. The bigger space is very much appreciated.

Exactly, they don't want to.

I live in a cheaper home because it was harder to buy a big home. Houses have grown in price steeply against wages. Had i been born 20 years earlier I'd probably have a home worth £100ks more.

I'm doing OK. I don't feel entitled to a bigger home. Those £100ks are worth something to my lifestyle. But I do wonder, people born 20 years before me "don't want to" have my small home. I mean that's their choice but I'm scratching my head at the trade off.

Oh and to your first question. Downsize

@Ophy83 can imagine that would happen with out space.

But there isn’t always a trade off, financially I won’t ever need to down size, so why would I? and downsizing would actually cost a huge amount of money in many cases so again what’s the point? I

Because 2 of the kids are still in shared houses. They need the security of knowing they have a room in this (chilly, shabby, big house).
Because the garden is a collection of plants built up over 35 years.
Because I have a dozen friendly households within 10 minutes walk.
Because I can walk our old dog round the streets at midnight and feel safe.
We are late 60s, still working part-time, no plans to stop. The house isn't valuable, it's a 70s breeze block thing. Downsizing would mean leaving the neighbourhood and cost a fortune. I hope we never have to leave.

That's heartwarming and makes sense

@Makemydaypunk good you don't need to financially. It would probably do the country a lot of good if it wasn't so expensive and our properties were more of a liquid asset. Couples sitting in family homes, honestly doesn't make sense on a national planning level, when there is a lack of housing. Maybe if it was cheaper to move we would still be here of course

Our friends need a bungalow. Their 3 bed semi is worth around £475,000. To get a 3 bed bungalow (few 3 bed semi detached bungalows here) it’s at least £150,000 more. A 2 bed small bungalow is around the same price. They could move further away but that means relatives and friends are some distance away. Downsizing can cost you a lot if you need a bungalow. In good areas they have been pulled down and are big houses now.

@ThoughtsQuestions You don’t seem to be able to factor in all the reasons people don’t move. I’m older than most posting here and we have a large valuable house. Luckily for me we’ve had enough money to install heat pumps, solar panels and batteries so it’s relatively cheap to run. I’ve got underfloor heating and a very nice house. Buying something else doesn’t appeal due to cost of updating somewhere else but we might, eventually.

Tech, clubs, gigs, festivals, holidays etc.. 🙄

They want to do lots of stuff, most of it is expensive, and they want to invite friends, and most of it is adult type stuff with adult prices, and there's no discounts or freebies for teens like for the little ones. Often you still need an adult to take them so you also need a ticket. It all adds up.

Cheap outings to play parks etc no longer do the job. We're not even at the university stage yet 😭

Plus they eat a lot...

I think the thing to look at is that you’ve got good options, with some downsides, whatever you do.

I raised my son to the age of 20 in a pretty small house - 2 up 3 down, one toilet. But it had a small garden (lucky, as with that one toilet I sometimes ended up peeing in it). And most of all, the location was truly wonderful. I still miss the place itself, we were surrounded by ds’s friends within easy walking distance, he walked to school from age 6, cycled to secondary. All that was 100% worth feeling pretty cramped. We could t really ‘entertain in any big way, though we managed to wedge some parties in all the same, and even had the odd tolerant overnight guest. Ds was amazed at the size of his university rooms, they were a lot larger than his room.

I have since then upsized. It’s so lovely having more space, I feel very relaxed having a more organised and comfortable home (with two toilets) and I’d recommend it. But I’m not so close to all our lovely friends, and that’s a loss.

Currently those who might consider downsizing are still all sitting on rightmove with houses overvalued by anything up to 25-50% wondering why they don’t sell. Dp’s mum wants to downsize a bit, but only to a bungalow in the same village, which including stamp duty will cost very nearly the same as her current house (if the latter sells), certainly by the time she redoes a bathroom, so it’s basically pointless. I think she will probably stay in the house until and if she needs a nursing home.

Its not so simple and easy to just rent out your home. There are regulations, tax and insurance to consider if being a landlord, and you can't just get your house back if you change your mind 🙄

If you want to focus on need - no one really needs a spare bedroom any more than the retire couple need their 3 bed semi - so all families with one spare bedroom should be looking to downsize also ?

Actually you only need at most 3 beds as children of the same sex can share - so we don’t need to build 4 and 5 bedroom homes - that will make it much easier to meet housing targets

Or does this only apply to older people who can’t possibly have a life worth living ? Who should sacrifice themselves to the young ? Because :…

Unless someone needs to sell their home because they literally can’t afford to run or maintain it I don’t understand why there is this expectation that “couples sitting in family homes” should downsize. Why is there this expectation of average people in their homes that they should move? We don’t demand this of the rich and famous “sitting” in one of their many mansions, so why is it the expectation for normal people to give up what they have bought and paid for?

We do have guests! We don’t expect friends or family to stay in hotels! This sounds like a communist state!

Agree that it's not small house vs. big house. If you don't want to overstretch/overcommit/stress yourselves financially, then moving somewhere bigger and more spacious, but not financially difficult is surely the answer?

If your DC are currently small, I would think about what your/their needs will be in future. I have teens and it's really good to have some space, as they are big and noisy and have big/noisy friends! The former playroom is now a study with desks and computers, where they can do homework in peace and quiet, also where they can game with their friends without disturbing the whole house. Having their own rooms/a bit of space for relaxing is also good at this age. One has a GF now and is an adult and so a bit of space/privacy is good. They are also unlikely to leave home until their mid-20s, at least, so that's another consideration, plus hopefully they'll visit after that, possibly with DPs/DC, etc.

I don't know, I think your home is a factor in your wellbeing for many people. I like to have spaces to escape to and space around me. Equally, we could afford bigger but I like a bit of cosiness too. Some people seem to only look to retirement, which is fine but your years now are not guaranteed and I think there has to be a balance. The main thing is to be happy with what you decide is best for you. Also, your small may not be small to some people.

“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.”

Our house is worth £750k and we own it outright. Who knows what governments of the future may demand in inheritance tax? I might downsize and gift cash to my kids only if there’s a prospect of an IHT grab. That’s the only thing that really drives me.

There is a cost of moving home - pay stamp duty, downsize belongings, perhaps move area. I like where I live. There’s space for relatives to visit and stay. It’s big but not huge so it’s fit for old age.

if I sell it then what do I do with the cash?
we worked so hard to save - it feels grotesque to simply spend the money on living costs. What if I need the cash for a good quality old folks home or carers later on? I have been brought up to think I should be productive and work hard so that I am always setting money aside for the tough times. Downsizing,and spending the released wealth whilst quitting paid work feels like insanity!

Sitting on a cash lump sum isn’t a good idea either - it devalues due to inflation. I can’t invest in cash ISA as we are maxed out. I can’t invest it in shares as I’m old I don’t want the risk to my capital. A fixed term interest product will attract cash (I’m a 40% tax payer).

Whereas leaving my wealth wrapped up in the value of my big house, the value of my asset is probably increasing despite blips caused by house sale slumps. I will be below inheritance tax threshold if I manage things properly.

Why are so many older people living in such valuable homes and not making this trade off?

My aunt and uncle fully intended to downsize.......... until they realised how much they'd pay in stamp duty. Moving to a smaller house wouldn't have released much capital at all, by the time they paid stamp duty on it. So they stayed put

We never moved out of our first house, so mortgage all paid off before we turned 40. Admittedly, we never needed to move areas for work (which I'd originally assumed we would have to) and we are happily childfree. But it meant that we were able to invest significantly, and thus retire early - not to mention have some fantastic holidays! We've now lived in our house for 36 years, and don't need to worry about downsizing 🤣 I would recommend this approach to anyone, and we have never regretted it. All of our friends and colleagues live in much bigger and fancier houses - so what? Just because you CAN upgrade, doesn't always mean you should. As long as your house meets your basic needs, why cripple yourself financially just to "keep up with the Joneses"?

You say children don't notice space, but teenagers really do. They need space, privacy, room to study if you want to have a harmonious six years (12-18).

I'm single and 60. DS will leave for uni this summer and only then will I consider downsizing our family home. We have a happy relationship because we have space to not tread on each other's toes.

Exactly.

As a 60yo I've spent 14 years sorting the issues with my home. New roof, rewiring, repointing, new windows & exterior doors, heating, kitchen & bathroom.

If I move, I won't enjoy the benefit of all my work. I'd need to start again, sorting the dangerous DIY of the previous owner, in another house.

I want to stay in my community with my friends and support network, but even if I could find a decent 2 bed cottage locally, it would cost about £15k in stamp duty, £20k with other fees. Add the cost of new curtains and carpets, adapting furniture and fixing the inevitable issues. A total bill of £40k if I'm lucky. For that money I am better off staying where I am.