What do you guys think of the following house rule? Could it present any balance issues?
If Arcanist counts as prepared, then yeah.
You're basically giving free "spells known" to any spontneous caster. I'm sure you realize this already. If your goal is to empower spontaneous casters, this'll do it.
For the record, I thought this was about letting a character cast a lower level spell with a higher level spell slot (which is actually specifically covered in the spellcasting rules for each spellcaster).
Otherwise, you're basically giving power to characters who shouldn't normally have it, and GM Rednal gives an important point; Psychic casters have this, as it's built into their spellcasting features.
A Cleric can spontaneously cast Cure/Inflict spells because they have a feature that lets them. Same goes with Druids and Summon Nature's Ally, and as GM Rednal stated, Psychic Casters with specific spells that permit undercasting. They have features and exceptions that give them this power. If they didn't have those features, they wouldn't otherwise get the ability to do that.
In my opinion, allowing power like that would be something akin to a feature that a class either possesses, or can trade for via archetype, as that's the current precedent set in the rules.
But, at the end of the day, it is your table. If you feel it's not unbalanced, then by all means let it work. Just remember that the current precedent would most likely tell you not to do it without giving up something in exchange.
In the practical sense, you're giving them a free, slotless Ring of Spell Knowledge for each level below their maximum spell level. At 4th level, that's an equivalent of 25% of WBL as a bonus. At 6th Level, the equivalent is more like 46% of their wealth, and I believe it keeps going up. It allows them to get the full benefits of a numbered line of spells, but also to learn another useful spell at the same time. That is a definite buff.
On the other hand, psychic casting has undercasting and it's not too broken - but then, their spell lists were balanced with that in mind.
Basically, it's giving a buff to classes that are already very powerful. The balance difference may not be huge for classes like the Sorcerer (which are already among the strongest in the game if built reasonably well), but it is there.
Or a page of spell knowledge, which is ~33% cheaper and already slotless. Plus it's not like there's a huge line of spells abusable by this rule. Summons, "cure" spells, beast shape, and Form of the Dragon are the only ones that come to mind and they tends to allow for the 'lower spell's' effects already.
It's not much of a buff. The Summon Monster X/Summon Nature's Ally X spell line doesn't benefit a whole lot from undercasting (as it already allows summoning multiple copies of lower level versions). The cure/inflict line is handy, but there are only a few 6/9 casters that benefit from this, and even then, they're spending their spells known poorly to do so. The shapechanging spells are about the only thing that really gets much benefit, and it's a good fit- if you're willing to forgo a better creature, getting a spell level discount for it is nice. It gives a little more incentive to grab a particular polymorph line rather than just rely on a catch-all like Polymorph.
Honestly, I'm less concerned about what spells could be used with this rule, and more with what other spells the character could learn. Freely learning Summon Monster I when you hit 4th Level and getting something like Grease in its place is a definite buff. XD Although, yeah, Pages of Spell Knowledge might work a bit better for calculating the GP cost.
Point is, it is a buff.
It's not freely learning it. You have to take Summon Monster II to get the undercast version. That means giving up Glitterdust or Hold Person.
It's a buff, but I think it's totally fine. However, i'd rule that the arcanist doesn't gain this benefit since they do not have a spells known limitation.
I think it's fine, since it really doesn't make sense that much sense for someone to know how to summon an elephant or a giant squid without also knowing how to summon a dog or a dolphin, or that someone knows how to cure a lot but not how to cure a little. It seems like there should be the same basic principles involved, the lesser technique involving fewer flourishes and advanced techniques.