Do I take a step down the ladder?

[VirginiaMilf]

This is more of a what would you do if in my shoes.

Late 30s, eternally single, no children, OK job with reasonable stability. I own a small family sized home worth £1.2m in a nice part of London. I have around £800k equity. I am struggling financially as my income is out of kilter with the property expenses.

Do I (1) sale the house, downsize to something half the price and get my finances in order. But this means I will likely never be able to upsize again and live in a desirable home and won't benefit from the increases in value. Or (2) keep struggling for the next 2 years until I get my share payout, then downsize at a later date when it should hopefully be worth more allowing me to be mortgage free?

Get a lodger

2 years will go quite quick, but it depends how much of a struggle it is.
If it's a little struggle and you just have to cut back on some luxuries, I'd be tempted to wait it out.

If it's a really big struggle and preventing you otherwise enjoying life, I'd perhaps downsize.

I will likely never be able to upsize again and live in a desirable home

Doesn’t this depend on what ‘desirable’ means to the individual? You have an extremely healthy amount of equity that would buy a desirable house by most standards. There’s a lot to be said to giving yourself a comfortable life.

We could have bought a much bigger house, but we prefer to have plenty of money available for holidays, theatre, concerts, socialising, etc.

Don’t let public perception inform the way you live your life.

I did consider this, but the tax situation makes it not so appealing

Depends how much you are struggling

It's not preventing me enjoying life, but I need to budget extremely carefully which can be exhausting

You can make £7500/yr from a lodger with no tax consequences

This is good advice. My step sibling really benefited from holding onto a higher value property in her 30s and now as a consequence is retired before 50. I'm just concerned it may not be a wise decision to downsize so early

God yes, in your position I'd cash it in and buy a lovely small 2 bed flat - easy to maintain, cheaper in the long term to properly look after. If you happen to meet someone in the next few years, well so be it. But struggling in a family home just for the asset seems pointless when you could be mortgage free and enjoy your life more (including the benefits of being child free eg ability to travel)

The other alternative is to rent out your home and rent a small place for yourself, to keep the asset, but that comes with more risks

I thought you could get 7.2 PA from a lodger, tax free, no? Is £600 a month not enough to bridge the struggle gap?

Get a Monday night to Thursday night lodger (Or Tues/Wed night only hybrid worker) who lives away but works in London. Approach the HR departments of big reputable companies near you/ easy to commute to, with details/photos of the room and what location etc. I'm sure there are masses of people that moved out to the sticks in Covid and now need to return to the office at least a few days of the week to whom the cost of staying in London is cheaper than commuting.

Will not be as onerous as a full time lodger, but those extra 8-20 nights rent a month will be amazing. Might cost you a little extra in house insurance, but provided you stick below the Rent a Room Scheme limit which allows you to earn up to a threshold of £7,500 per year tax-free from letting out furnished accommodation in your home, you'll not be paying extra in tax.
https://www.gov.uk/rent-room-in-your-home

I would do this simply to tide you over - interest rates at last appear to be dropping, meaning your mortgage repayments will be less, plus I presume you'll get pay rises over the next few years, between that and your share payout in 2 years time hopefully then you'll be sitting pretty with a low mortgage in a good property. Then stash into pension and when you've hit a reasonable sum there, time to retire early, sell up and move to a nice area of the country to enjoy retirement.

The lodger income wouldn't be enough. To not struggle, I'd need an additional £1500 each month after all taxes and expenses.

My current home is a 3 bed period house. If I sold it, I could probably get a 2 bed period house in a similar location, but it would need renovating. This would allow me to not struggle and clear all my debts.

You must have a good salary to have afforded the house? But if you are in debt & each month is stressful then what about selling up for a 900k house with a small mortgage?

I wouldn’t really think oh the expensive house will be worth so much more in 10 years as economically things are quite different now.

Duplicate.

No need for a housing ladder if you don't plan to have kids.

If you’re only going to be struggling for 2 years I would stick with the existing house personally assuming you still like the house & area.

Downsizing would bring its own challenges. And it’s not a god time to be selling unless you’re upsizing at the same time.

Can you get an interest only or part interest only mortgage until your money is available? You can overpay each month if you like, so pay as much as you are currently if you want to buy it also gives you the flexibility to reduce payments a bit for a while if you need to.

So getting a lodger wouldn't mean that you wouldn't struggle at all. But you would struggle significantly less than you are doing now?

Basically OP doesn’t want to get a lodger.

I wouldn't buy a flat because of service charges as per earlier suggestion.

£1500 extra a month is a lot, Op. I think that your idea of selling and buying a 2 bed property that you can renovate is a good one. You will still be in an extremely good position financially.

Yes I think this may be an option, but the transaction costs involved may mean i should perhaps go even lower?

I like the area and the house is OK, but I can't afford to make it anything beyond manageable.

What challenges do you anticipate downsizing bringing?

I can't make any changes to my mortgage unfortunately. I spoke to the lender and the best they could offer was 6 months interest free

Yes significantly less, but I would presume having a lodger would bring its own issues too with house cleaning, heating etc