Downsizing vs Equity Release: Which Makes More Sense in Berkshire?
If you're over 55 and own your home in Berkshire, there's a good chance much of your wealth is tied up in bricks and mortar. Many homeowners in Wokingham, Bracknell, Reading and the surrounding villages have seen their properties rise in value considerably over the years. That's great on paper, but it doesn't help with day-to-day living costs, home improvements or helping the children buy their first home.
There are two main ways to unlock that money. You can downsize, which means selling and moving somewhere smaller. Or you can use equity release, which lets you borrow against your home while you stay living in it.
Both can work well. Neither is right for everyone. This guide explains how each one works, what they cost, and the questions worth asking before you decide.
How downsizing works
Downsizing is simple in principle. You sell your current home, buy a less expensive one, and keep the difference.
For example, you might sell a four-bedroom family home in Wokingham and move into a two-bedroom bungalow or apartment nearby. The difference between the two prices, minus your moving costs, is money you can spend, invest or gift as you wish. It's yours outright, with no debt and no interest.
- No borrowing and no interest. The money you release belongs to you.
- Lower running costs. A smaller home usually means lower council tax, energy bills and maintenance.
- A home that suits later life. Single-storey living, less garden to maintain and being closer to shops or transport can make a real difference as you get older.
- Your estate stays intact. Your family's inheritance is not reduced by a growing loan.
- Moving costs add up quickly. Stamp duty, estate agent fees, legal fees and removals can easily come to £20,000 or more. See the worked example below.
- Leaving somewhere you love. Many people have lived in their homes for decades. Leaving friends, neighbours and a familiar community can be harder than expected.
- Finding the right property. In parts of Berkshire, smaller homes that suit later life, especially bungalows, can be hard to find and are often in high demand.
- The gap may be smaller than you think. Smaller properties in desirable areas are rarely cheap, so the amount you release may not be as large as you'd hoped.
What downsizing could cost: an example
Say you sell a £650,000 detached house and buy a £350,000 bungalow:
| Cost | Approximate figure |
|---|---|
| Stamp duty on a £350,000 purchase | £7,500 |
| Estate agent fees (e.g. 1.2% + VAT) | £9,360 |
| Legal fees (sale and purchase) | £2,500–£4,000 |
| Removals, surveys and sundries | £1,500–£3,000 |
| Total | Roughly £21,000–£24,000 |
That still leaves around £275,000 released. But the costs are real, and they shouldn't be overlooked. (Figures are illustrative only. Your costs will depend on your circumstances.)
How equity release works
Equity release lets homeowners aged 55 and over access some of the value in their home without moving out. The most common type is a lifetime mortgage. You borrow a tax-free lump sum, or set up a drawdown facility, secured against your home.
With most lifetime mortgages you don't have to make monthly repayments. Interest is added to the loan instead. The loan and the rolled-up interest are then repaid when the last borrower dies or moves into long-term care, usually from the sale of the home.
How much you can borrow depends mainly on your age and your property's value. The older you are, the higher the percentage you can usually release.
- You stay in your own home. There's no need to leave your community, your garden or the house you've made your own.
- No moving costs or upheaval.
- Flexibility. Drawdown plans let you take money as and when you need it. Interest is only charged on what you've actually taken.
- Built-in protections. Plans that meet Equity Release Council standards include a no-negative-equity guarantee, so you'll never owe more than your home is worth. They also give you the right to live in your home for life and the right to move to a suitable alternative property.
- Optional repayments. Many plans now let you pay off some interest or capital each year, often up to 10%, without penalty. This helps control how much the loan grows.
- Interest compounds. If you make no repayments, interest is charged on interest. At 6% a year, for example, the amount you owe would roughly double in about 12 years.
- It reduces your estate. Your family will inherit less.
- It can affect means-tested benefits. Releasing a lump sum could reduce entitlement to things like Pension Credit or council tax support.
- Early repayment charges. If you want to repay the plan early, perhaps because you later decide to move and not take the plan with you, some lifetime mortgages carry significant charges.
Downsizing vs equity release at a glance
| Downsizing | Equity release | |
|---|---|---|
| Stay in your home? | No | Yes |
| Interest to pay? | No | Yes (usually rolled up) |
| Upfront costs | Stamp duty, agent, legal, removals | Advice, valuation and legal fees |
| Effect on inheritance | Money released stays in your estate | Estate reduced by the loan plus interest |
| Speed | Depends on selling and buying | Typically a few weeks to a few months |
| Best for | People ready for a smaller, easier home | People who want to stay where they are |
Which makes more sense for you?
Downsizing may be the better fit if:
- your home now feels too big, too costly to run, or hard to manage
- you'd like to move closer to family, shops or healthcare
- leaving as large an inheritance as possible matters to you
- you'd rather not borrow at all
Equity release may be the better fit if:
- you're settled and happy where you are, and want to stay
- moving would mean leaving behind a support network of friends or family nearby
- you need a relatively modest amount, perhaps for home improvements, clearing an existing mortgage or helping a family member
- suitable smaller homes in your area are scarce or not much cheaper than your current property
There are other options too
This isn't always an either/or decision. Depending on your circumstances, other routes might work better:
- A Retirement Interest-Only (RIO) mortgage. You pay the interest monthly, so the debt doesn't grow.
- A standard remortgage with a longer term, if you have enough income to support repayments into your 70s or beyond.
- Downsizing and releasing equity together. For example, moving to a smaller home and taking a small lifetime mortgage on it.
- Family support arrangements, where relatives help in return for a share in the property.
A good adviser will look at all of these, not just the product they're asking about.
Questions to ask yourself first
Before speaking to an adviser, it helps to think about:
- What is the money for, and how much do you really need?
- Where do you see yourself living in 10 or 15 years?
- How important is leaving an inheritance, and have you talked about it with your family?
- Do you receive, or expect to claim, any means-tested benefits?
- How is your health and mobility likely to affect your housing needs?
We always encourage clients to involve their family in these conversations where possible. It avoids surprises later and often makes the decision much clearer.
Frequently asked questions
Can I downsize if I already have equity release?
Yes, in most cases. Plans meeting Equity Release Council standards let you move your lifetime mortgage to a new property, as long as it's acceptable to the lender. If the new home is worth less, you may need to repay part of the loan.
Is equity release money taxable?
The money you release is tax-free. However, how you use or invest it could have tax implications, for example for inheritance tax planning.
What's the minimum age for equity release?
Lifetime mortgages are usually available from age 55. The youngest borrower's age is what counts.
Will I need a solicitor?
Yes. Equity release requires independent legal advice to make sure you fully understand the commitment before completing.
Speak to a local adviser
At Premier Financial Services, we've been helping homeowners across Wokingham, Bracknell, Reading, Crowthorne, Ascot and beyond for over 25 years. We'll take the time to understand your situation and explain your options in plain English, including whether downsizing or doing nothing might actually suit you better than borrowing.
There's no pressure and no obligation.