Downsizing used to be regarded as the preserve of the elderly or the prudent. A retired couple who swap their large country pile for somewhere a bit more manageable, for example, so leaving them with fewer stairs to climb and some spare cash to boost the pension. Or a financially stable middle-aged couple who sell up to help their children on to the property ladder.

But the picture is changing. Half the estate agents surveyed by the National Association of Estate Agents said that at least 20 per cent of their clients are now “forced downsizers”: people who can simply no longer afford to keep the property, often because they took out 95 per cent mortgages in the boom. Their only option? Sell up and buy something smaller.

Marcus Dixon, associate residential researcher at Savills, says: “There are more people downsizing now, some because they can't afford monthly payments, perhaps because they worked in the City, bought big houses, but have now lost their jobs. Others have lost savings, or need to release equity from their house as quickly as possible to pay for their lifestyle.”

Savills research suggests that in the £500,000 to £1 million bracket - the amount that a Canary Wharf banker may well have paid for his London pad - downsizing has increased by 1per cent since last year. However, the figure may be much higher, as people are often embarrassed to admit to struggling financially. Dixon says: “By the time a seller has factored in moving and legal costs, it doesn't really make sense to downsize for financial reasons unless your property is worth £600,000-plus.”

But unlike “discretionary downsizers” - the elderly and the helpful parents - who look for something smaller in desirable locations, forced downsizers have to consider places and properties that they would not have before. Lucian Cook, director of residential research at Savills, says: “Many households may go wherever the price drops have been greatest. So, from Devon or Cornwall to somewhere in Somerset, for example. Or from Cheshire to North Wales. And the significant falls in the new-build sector will be a temptation.” According to the property search engine Globrix, a four-bed house in Devon costs about £386,000, whereas a four-bed in Somerset will set you back £358,000, or a two-bed £182,000.

Wendy Farargy, 60, is a divorcée who is downsizing from her five-bedroom house, pictured right, in Cobham, Surrey, to a two-bed house in London for financial reasons. She and her husband, Nael, a hotelier, bought the house for £1.75 million in 2003. They got a good deal because the owners needed to relocate urgently to the US. It went on the market in July for £3.55 million but has since been dropped to £2.65 million (for details go to savills.co.uk, 01932 586200).

“It's very sad - I thought I was going to grow old in that house,” Farargy says, “but needs must. I have legal costs to pay from the divorce and these days I simply can't afford the place any more.” She is looking to move to Maida Vale or Swiss Cottage, to be nearer to her son. She hopes to buy a terraced house with two bedrooms, separate living and dining rooms and possibly a small garden.

She acknowledges that, because of her revised budget, she may have to look farther afield, possibly Wimbledon or Surbiton. A property of this kind in Maida Vale, Globrix says, costs £750,000 (above Farargy's £650,000 limit), but £258,000 in Surbiton. Or she could find a three-bed in Wimbledon within her budget.

“It's going to be quite a shock ... And moving to such a different place - to London after 20 years in the country - at my age is a real worry. In Cobham I shared my house with my son, husband and lots of friends. Here I will have to make new ones.”

Putting aside emotional attachments to an area or house, is it really a good idea to downsize in the current climate? Unless you are a cash buyer such as Farargy, you risk not only getting less for your property but also being unable to secure a decent mortgage or, indeed, one at all.

Melanie Bien, director of the mortgage broker Savills Private Finance, says: “Ideally your lender will let you ‘port' the mortgage to your new property on the same terms, so you don't have to worry about getting a new mortgage in this new, more difficult environment.”

The problem occurs if the lender imposes an early repayment charge if a buyer has a mortgage on a fixed or discounted period and wants to pay off a chunk. If a mortgage is not transferable, the seller will need another one, but there is much less choice than in the past. “The best deals are available for those with a 25per cent or even 40 per cent deposit,” says Bien. Savills estate agency predicts that the proportion of cash buyers is set to grow from 25 per cent today to up to 40 per cent by the end of next year, as people with equity start using their spare resources to take advantage of low prices during the downturn.

Those with a change in circumstance, such as job loss, face the biggest challenge as mortgage lenders consider them high risk. Ray Boulger, of the mortgage broker John Charcol, suggests that if your previous income is likely to be reinstated at some point, now is a good time to take advantage of some of the offers from developers, such as those that let you pay just 75 per cent of the purchase price up front. “This means you need a much smaller mortgage and a proportionately smaller deposit. Although the downside may be that you ultimately pay slightly over the odds for the property, it's still often cheaper than a high-rate mortgage.”

Agents say that rent downsizing is also becoming increasingly popular among would-be sellers. It often allows families to stay where they are, instead of being forced to move farther afield, which is attractive to households with an investment in the area, for example if their children are in local schools. Dixon says: “People are also more willing to compromise with rental property. Downsizing can be unnerving, and they see this as somewhere that will do temporarily instead of as their permanent home.”

Times recommends

• Fall in house sales hits builders, estate agents and mortgage brokers
• Why the property credit crunch favours cash buyers
• The blood-curdling history of Quarrelwood House