Home downsizing boom looms for retirees, but other options remain

The housing boom has pumped a lot of extra wealth into senior Australians’ homes, and there are several ways to unlock it.

Soaring home values and the rising cost of retirement have left Australia poised for a home downsizing boom.

But two big questions remain for anyone thinking about shrinking their family home to free up cash and time: Is it worth it financially and emotionally?

For some, a large family home makes no sense for empty nesters to live in, but others prefer to stay and can consider reverse mortgage options offered by both Centrelink and the private sector.

A report this month by Michael Blythe, former Commonwealth Bank chief economist and current Downsizer.com economist, says while a rising home value makes senior homeowners wealthier, “it does little for incomes”.

“Older households are asset rich but cash poor, and they live in increasingly inappropriate housing – the attraction of, and pressures for, downsizing are increasing,” the report says.

It says a significant number of households are reaching retirement age with a mortgage, and 5 per cent of over-75s still have a home loan.

CHANGING DYNAMICS

Blythe says surveys suggest there are 1.7 million future downsizers. He says a perception has been that downsizing doesn’t free up much cash because downsizers favour new developments that are not much cheaper.

Economist Michael Blythe says older households are asset rich but cash poor. Picture: Hollie Adams

“But the dynamics are shifting,” he says.

“The price gap between houses and units is widening and is now as large as it has ever been. This larger gap is a powerful financial incentive to downsize”.

Goldsborough Financial Services director Brenton Miegel says it’s important that seniors are “emotionally ready to downsize, and in the position where it feels like the right thing to do”.

He says people also need to think about the age pension implications of downsizing.

A pensioner couple without a home can hold $216,500 more assets than homeowners before it impacts their pensions, but most homes today hold equity far greater than that.

“Don’t be reactive to what the property market is doing,” Miegel says.

“Selling for the sake of selling and not having anywhere to go can be a bit of a disaster. The rental market is super-tight.

“Seek financial advice – we are dealing with this stuff all the time.”

Downsizer.com managing director Mark Macduffie says property developers are building for empty nesters seeking more luxurious lifestyles.

CHECK OPTIONS

He says demographic data shows many Baby Boomers “are living in housing that’s not appropriate for them”.

“Downsizing can set you up for the next stage of life and it can also release equity to boost your retirement income,” he says.

However, equity release company Household Capital’s CEO, Dr Joshua Funder, says he does not see a downsizing boom ahead, “because seniors want to age in place and the family home is their preferred housing”.

“Since Covid lockdowns and the Aged Care Royal Commission, older Australians are even more determined to stay at home as long as they can,” he says.

Funder expects equity release to boom in the next decade after doubling in the past two years to about $600 million annually, boosted by strong house prices and more conservative lending for reverse mortgages.

Centrelink’s Home Equity Access Scheme is a type of reverse mortgage that allows pensioners to dip into their equity to withdraw 1.5 times the full pension per year. Household Capital’s equity release product allows up to $1.5 million to be withdrawn, although its 4.95 per cent interest rate is higher than Centrelink’s 3.95 per cent rate.

“Actively manage your home equity alongside your pension, superannuation and other assets,” Funder says.

Seniors who plan to sell should prepare well first. Picture: iStock.

BEFORE DOWNSIZING …

• Make space in your home to sort possessions, and have a retreat to get away from the mess.

• Book a council hard rubbish collection to set yourself an initial deadline to declutter.

• Search your home one room at a time to find items you don’t need – be decisive, then donate, sell or give them to family.

• Work out what furniture will go with you.

• Consider repairs or renovations to maximise the value of your home before selling

• If there’s a time gap between selling and buying, and how will you manage it? You may need to rent, move in with family or buy off the plan and use a deposit bond.

Source: Downsizer.com

Originally published as Home downsizing boom looms for retirees, but other options remain