When is the right time to move house?

When the winds of economic change are blowing, it’s often a good idea to make your property move, batten down the hatches, and stay put for a while. We aren’t quite at that point in the cycle. However, with interest rates on the rise, inflation beginning to kick in and all the signs of a slow-down at best and a possible recession, now is the time to take some decisions.

There are costs to moving and if you are going to go to all the trouble, you may want to increase your property exposure. Otherwise, you’re investing more money in an asset that will most likely grow in value at the same pace as your previous abode. Moving to similar sized properties is best done in a rising market where you secure your sale and purchase a new home at a similar time.

So, when is the right time to buy a bigger or more expensive home? An upsize is generally driven by two factors. A growing family and greater earnings allowing you to spend or borrow more. In these circumstances, no matter what the market conditions, a move makes sense.

Some upsizers may find they can leverage a falling market to secure the sort of property that would have evaded them in a strong market. At the beginning of this year, for instance, the price of detached homes rose much more quickly than that of semi detached properties (the difference was 2.5 per cent), making it more difficult for upsizers to make the jump. In a falling market, the price difference between larger and smaller properties will be less pronounced.

Those looking for larger homes during the pandemic frequently found that any property worth its salt had a plethora of interested buyers attached to it. Those who weren’t cash buyers had little chance of an offer being accepted. Those days of heated competition seem to be passing. This seemingly creates an opportunity for buyers with homes to sell who were previously locked out of the market.

But, upsizers must beware. Yes, the price gap between an existing property and a new one will narrow if prices fall. But in a rising market, you get the benefit of exposure to an asset that is increasing in value. And in particular if you have a mortgage then your equity performance is enhanced (as it's tax free).

If you are upsizing into a falling market then holding off between selling your existing home and purchasing a new one may benefit you in the short term. But who wants to buy an asset that will lose, say, 20 per cent of its value in a year's time? If you ever have to sell unexpectedly then the prospect of negative equity looms. If there’s any doubt in your mind that you might need to sell again in the short term, you'd be better off staying put and having a lower exposure to losses. Because (if the market is moving in tandem) your losses will be lower if your exposure to the asset is lower.

So where does that leave you? If you want to upsize, there are some important factors to consider.

1. Why are you buying a larger home? Do you need the space now or can it wait?
2. Do you have the money to move, or will you be stretched? And can you cope if interest rates rise further?
3. Will you need to move again, or can you sit it out for five years?
4. According to Barclays, the average cost of moving house in the UK is £11,777. Are there any opportunities either with your current house to expand or remodel that will give you the space you need rather than upsizing and spending the money on stamp duty and the costs of moving?

Frankly, your decision will be driven by your needs and financial constraints. It’s the timing of downsizing that is more problematic.

Your first question when looking to downsize is whether you are downsizing (buying a cheaper or smaller property in a similar or commensurate location) or down value-ing (buying a similar sized, larger, or perhaps smaller property in a different location to release cash). Setting your objectives and doing the financials should drive your decision. Get it wrong and it will be an expensive move back up the ladder.

Downsizing used to be the preserve of the over 55’s. Children have grown up and flown the nest and owners want to release some cash. In a cost of living crisis with rising energy bills, this approach is certainly growing in appeal - not just for the over 55s for but the generation below too. But market movements and stamp duty have upended many owners' opportunity to downsize. Unless you’re moving to a market or area with different pricing dynamics, it’s a difficult move to pull off because prices have risen so consistently across the country. And if you aren’t careful, you’ll end up with a smaller property, burn the cash released on tax and renovations whilst lowing your exposure to a rising market.

Here's your downsizing checklist:

1. What’s your primary aim of downsizing? To release cash? Move to a different location? Or a smaller property and a different location? Clarify your reasons for making the move.
2. Are you prepared to buy a project? Selling a house that’s ‘done’ may get full value in today’s market as a lot of buyers want to avoid costly and expensive works. Buying a property that needs work allows you to release cash whilst creating an opportunity to add value to the property over time.
3. Timing. Sell your property first. Don’t make the mistake of finding the property you want and forcing yourself into a scenario where you sell at a discount in order to avoid losing out on the new home.
4. Do your homework on your new home. Moving up a chain, especially if it’s not a ‘forever’ house, will be more forgiving than downsizing and finding you’re constricted. You don’t want to squander the money you’ve released.

Deciding to move involves a complex alchemy of market movement, timing, and personal finances. Get it right and you can release funds or position yourself for the next cycle. Get it wrong and you could be stuck in a home that you dislike having spent a fortune doing so.