Is it time to downsize your home to downsize your bills?

House prices have surged over the past 18 months, with supply unable to keep up with demand as homeowners joined the race for space and a change of lifestyle post-pandemic. But since mid-2021, it’s not just a hike in house prices we’ve seen, it’s the unprecedented jump in costs of our everyday essentials including food, fuel, and energy. Wage levels can’t keep up with sky-rocketing prices and we are now in the midst a cost-of-living crisis with the highest inflation rate, currently 10.1%, for over 40 years.

With food prices rising by 10.5% in August alone, the highest rate since the global financial crash in 2008, the Asda Income Tracker claims a fifth of UK households are now reporting an average shortfall of £60 a week between their income and what’s needed to cover monthly outgoings for essentials.

With homeowners feeling the pinch, many are attempting to make up the monthly shortfall to help deal with the crisis. Close Brothers Motor Finance, are reporting consumers are tired of high prices at the pump and are increasingly trading in their prestigious cars from luxury brands BMW and Audi, and opting for more fuel-efficient, cheaper alternatives, then pocketing the difference.

According to Spring partner Audley, one of the UK's largest retirement living providers, more than 2.6million over 55’s are now considering downsizing, with 44% doing so to cut costs. PurpleBricks have also looked at consumers who are choosing to sell their home to help reduce their outgoings and revealed that more than a quarter of 45- to 54- year-olds are looking to downsize, and 10% of those under the age of 24 are also looking for a smaller more fuel efficient home that’s cheaper to run.

Savills have recently published figures revealing the average amounts that older homeowners could potentially unlock by downsizing their home. Their research revealed more than 3.6million homes across the country, that are owned by the over 65’s, have at least two spare rooms and could unlock from just under £60,000 in the North East to just over £239,000 in London if they sell up, that’s an average of £129,000 that could be released by simply downsizing.

According to the Building Societies Association (BSA), their most recent research reveals that higher energy costs are the biggest worry for the vast majority (73%) of consumers. Even with the price freeze coming into play in October, winter fuel bills will be double what they were this time last year, meaning many homeowners will still have their finances stretched beyond their limits and force many into fuel poverty. A household is considered to be in fuel poverty if it has to spend 10% or more of its income on energy. For advice about fuel poverty and what help is available to homeowners, please contact the Citizens Advice Bureau.

With energy company E.on UK suggesting that one in eight households are currently struggling to pay their bills, and that number could rise by 40% by October when fuel prices rise again, making many consumers, particularly those who are old and vulnerable, to have to choose between heating and eating this winter.

With so many factors affecting our bank balances right now and household expenditure seemingly out of control, it’s easy to see why more and more homeowners, especially those over 55, are considering downsizing a lot sooner than expected to give their bank balance the boost needed to help ride out this crisis and beyond.

Here we take a closer look at the biggest consumer worries right now and how energy price increases may affect you and your household.

What is the Energy Price Guarantee and how is it replacing the Ofgem energy price cap? 

The Energy Price Guarantee, announced by the Government on 9^th September, replaces the Ofgem energy price cap increase that was scheduled to kick in on the 1^st October. The new Energy Price Guarantee is a price freeze that will now prevent households paying the potentially crippling average of £3,549 a year for their energy, instead a typical household in Great Britain will now pay an average £2,500 a year under the new scheme.

How long will the Energy Price Guarantee last for?

Prices are now capped for the next 2 years, many other details of the scheme remain unclear at this time, but it is anticipated that along with a £400 payment from the Energy Bills Support Scheme, the average household will save around £1,000 a year when compared to the bills that would have been payable through the scrapped Ofgem price-cap.

How much will my bills be compared to last year?

Despite the price freeze, energy bills will still increase by 25% in October compared to what households are paying now, and they will be double at the end of the year compared to what they where at the end of 2021.

What’s causing energy prices to increase so much?

According to the Energy Saving Trust, as countries recovered after the pandemic, supply couldn’t keep up with demand.  Along with global shortages, a lack of renewable alternatives, adverse weather and the continuing war in Ukraine, prices have now increased by unprecedented amounts.

Who is most affected by rising energy costs?

The prize freeze will affect over 24million people in England, Scotland, and Wales, and anyone on a fixed tariff that is about to expire, that number will grow.

Those on lower incomes or rely on state pensions and benefits, are predicted to struggle the most. According to the Institute for Fiscal Studies, poorer households are currently experiencing higher inflation – on average – than better-off households. Based on the share of budgets spent on different broad product groups – the annual inflation rate for the poorest 10% of households was 10.9% in April. By contrast, the richest 10% of households had the lowest rate of inflation, at 7.9%. This is because energy costs – the major driver of recent inflation – makes up a greater proportion of household budgets for low-income households.

But no one is immune to the rising bills, research suggests that many homeowners are turning down invitations to social events, family gatherings, postponing weddings, and cancelling other milestone celebrations to save money. A recent study by Forbes Advisor, found that more than a quarter of adults are cutting back on gift giving and spending less on significant life events due to the rising costs of food, fuel and energy prices.

What support is available to homeowners?

Although the government has announced that all UK households will be given a one-off £400 discount on their fuel bills from October, and an additional £650 payment to more than 8million low-income households who receive benefits or tax credits, for many these discounts won’t be enough and homeowners will still look for ways to cut their monthly outgoings.

So, is downsizing the answer to upsizing your bank balance?

With the average cost to move home in 2022 in the region of £13,000 according to comparemymove.com, it’s important for homeowners to do their sums before deciding to downsize and seek advice from an independent financial advisor if needed. However, if the maths adds up and considering the rising costs of running a home each month, the stress and upheaval of moving home will be far outweighed by the financial benefits.

How much money can be saved by downsizing to a smaller home?

Larger properties will naturally use more energy than their smaller counterparts – so the bigger the usage, the bigger your bills. Energy consumption also depends on how fuel efficient your home is, and all UK homes are given an EPC (Energy Performance Certificate) rating from A (the most efficient) to G (the least efficient).

Nationwide’s chief economist, Robert Gardner says, ‘From October, average bills for D-rated properties (the most common type) are set to rise by just over £1,250 a year, even after taking account of the government’s £400 discount’.

Despite the price freeze, homes with the worst energy efficiency rating, E to G, will face the biggest rise in their bills. Next month, according to data from the Resolution Foundation, the average monthly gas bill for properties with a D-rating will be 28 per cent more expensive than an average C-rated home. And, with many older homes with minimal insulation and original features such as single glazed windows, it could soon turn into a financial burden for the equity-rich, income-poor retirees of the UK.

Houses with lower EPC ratings will undoubtedly see their bills rise even more, so as well as being money pits, energy inefficient homes may now become more difficult to sell, especially those that are old and lacking in modernisation. Savills found that 71% of homebuyers regard EPC ratings as important in their decision making now when buying a property, and, with estimates from the English Housing Survey revealing that it will cost an estimated £8,332 to bring a D rated property up to a C rating, the expenditure for lower rated properties will be a lot more.

Advantages of downsizing?

Downsizing is not only an opportunity to lower your bills and boost your bank account at a time when you may need it the most, it also removes many of the stresses of owning a larger home and all the responsibilities that come with it. Moving to a smaller home means less upkeep and less maintenance, resulting in more time for yourself. For those downsizing for retirement, it’s also an opportunity to move to a community that suits your changing lifestyle, where there is as little or as much help to hand as you need.

How to lessen the stress of downsizing.

Moving doesn’t need to be stressful and if you have made the decision to downsize, Spring can help.

"We were rattling around our big house, we needed something smaller… Spring took away a lot of the worries and stresses” - Mr & Mrs Perrin, downsized with Spring.

“It took a lot of pressure off us all and I couldn’t imagine selling in this situation any other way” - Thelma, downsized with Spring.

We have helped hundreds of customers to sell and downsize their property thanks to our simple and easy homebuying service. We also work in partnership with many of the UK’s leading retirement providers and developers, purchasing property in as little as 7 days, or on a date that suits the onward move, meaning no waiting around and paying expensive energy bills on a large property that you have chosen to leave.

Spring can provide you with a free no-obligation offer on your home and get your sale completed before the October price hike kicks in, get in touch today and let’s get you moving.

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