Turning your house into a late-life money-maker
Tuesday, 14 July 2026
Martin Hawes is a financial writer and presenter, and has written 25 personal finance books. He writes a weekly column.
OPINION: Last week, in trying to help retirees through tough, inflationary times, I wrote that I was not keen on downsizing the house to free up capital. Hard against my word count I gave no explanation for that view, and a reader asked me to elaborate.
What I said in last week’s column is that instead of moving to a smaller house, people are often better to stay put and use a reverse mortgage or home reversion.
When I think of downsizing I think of people who want or need to unlock capital from their houses: such people have a lot of house but not enough savings to live a decent life. There are others who want to downsize because their house (and/or the garden) is too big, or whose house needs more maintenance than they can manage as they age.
I am only addressing those who want more cash, not those who are finding the house hard to keep.
Downsizing to free up capital mostly works if you are prepared to move to another location. However, if you want to sell your four-bedroom house and buy another in the same suburb or town which has three bedrooms, you are unlikely to free up much capital. This is especially so when you have accounted for the costs of selling and buying: real estate agents, lawyers, home checks, engineers, removals etc. And then, when you are in your new house there are nearly always things that need money spent (can you really live with that carpet, and wouldn’t the garden be so much nicer with a small water feature out the back?).
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With a genuine downsizing (simply going to a smaller house) there is often not a lot of financial difference between your house and a smaller one in much the same location and much the same quality (especially after costs are counted).
It is certainly true that you can unlock capital if you shift to another locality, say, from the big smoke to a smaller town. It seems likely that you could free up capital if you move from Christchurch to Fairlie, or from Hamilton to Dannevirke– perhaps quite a lot of capital, enough to let you live a really good life.
However, to do that you may leave behind a lot of friends and, perhaps, family. Will you be able to build a network of friends and find a place in the community again?
Moreover, what about facilities, especially health provision. Moving from a larger centre to go to a smaller centre usually means less easy access to healthcare.
If you have a large and/or valuable house that you like, you may be better to stay there and continue to enjoy it. Continuing to own this house and freeing up capital can be done either through a reverse mortgage, or by a home reversion product. A reverse mortgage sees you continuing to own 100% of the house and continuing to get any capital gains that accrue. However, because you borrow it will cost you interest (which is not paid until you vacate).
Home reversion, on the other hand, means that you sell a small part of the house each year for which you get an income. You are not borrowing and so there is no interest accumulating. However, because you own less of the property, you will not get as much capital gains (if there are any).
When you have a valuable house but not a lot else, I think that using one or other of these products is a tidier solution. You stay in your community, do not have the hassle of selling, buying and moving, and continue to live in a house that you like and with which you are familiar.
There are costs whatever you do: either interest to pay, less equity in your house, or moving house. It seems to me that there is more risk involved with selling up, moving and hoping that you like your new place.
There is a variety of possibilities with using the house to obtain income depending on where you live and what you own. You should look at all the options, do some numbers and follow what will make you happy. In the end, the best life in retirement is the most important factor in your decision.
Martin Hawes is not a financial adviser and the information and opinions here should not be taken as financial advice.