Why downsizing is a sensible choice
We’re all familiar with the phrase ‘empty nesters’ used to describe older couples who have waved goodbye to their adult children and are now contemplating life in a strangely tranquil family home.
But older people are finding the physical demands of running a large property coupled with rising living costs increasingly stressful.
Many Baby Boomers are now contemplating selling the family home and moving into something modern, convenient and low maintenance, while freeing up money to fund their retirement.
Research by Digital Finance Analytics suggests that one in 10 Australian households is considering downsizing, with 90% of people aged between 65 and 74 living in houses that are now too big for just two people.
Reasons for downsizing include house and garden maintenance, the desire for better transport or a dwelling that is more suitable for ageing.
“A smaller home means fewer rooms to clean and a smaller garden to maintain,” says property writer Melissa Gerke. “Moving into a smaller place may also provide for the future financially.”
So, what is stopping them?
Barriers to downsizing include the price of the potential replacement home, the high cost of moving, the fear of change and an unwillingness to move too far from their current neighbourhood.
Downsizing Just Got Easier
Australian digital platform Downsizer is an innovative solution for those who want to sell an existing property but are reluctant to take on financial debt in order to buy something more suitable for their needs.
Chris Daley, Chief Business Officer at Downsizer, says its model provides a pathway for its clients to purchase a new property without the stress arranging bridging finance, draining their savings or giving the bank financial interest in their home with a reverse mortgage.
“Downsizer gives the opportunity for people to live a better lifestyle and instead of spending their own money on a cash deposit we replace that cash deposit with a bond,” he said.
“That bond is substantially cheaper than using your own money.”
Mr Daley says homeowners could secure a three-bedroom apartment at Archibald by ALAND, an exciting new development on the NSW Central Coast with a $6,000 Downsizer bond .
“This means that Downsizer clients hang onto their own cash and do not have to pay 7% or 8% on a reverse mortgage.,” he said. “You actually have two property assets: you have the asset you are still living in and a second property, in this case a brand-new ALAND apartment.”
The other advantage of Downsizer is that the bond is fixed, unlike a reverse mortgage where the interest compounds over time, increasing the amount of money that is needed to purchase a new property.
Mr Daley says that Downsizer means that people can typically stay in their existing property until the purchase of their new home is complete, further reducing the financial and emotional stress of such a big move.
“You don’t need to go out and rent another residence [after selling the family home],” he said. “You can arrange to move out of one property and straight into the other – which makes life a lot easier.”
Make the Move Now
Michael Blythe, Economist in Residence at Downsizer, says that releasing the equity in a large, family home is an excellent way of ensuring financial independence for retirees or those approaching retirement.
“The number of people who live in a house tends to decline over time,” he said. “So, we end up in a situation with a few people living in a large dwelling – in fact, far larger than they typically need.”
Research suggests that there are 13 million spare bedrooms in Australia right now, but also that the cost of maintaining these large family houses, often with big gardens, is a major burden for ageing homeowners.
“The most common calls for assistance from older age groups are typically things to do with the house they live in,” said Mr Blythe.
“And we know that the cost-of -living squeeze tends to be greater for older age groups in the population.”
Downsizing reduces weekly living costs and frees up equity that can be used to fund lifestyle options, such as travel, or invested to generate more income. Any profit from the sale could be deposited in the bank, used to buy an investment property or put into family super.
“The government allows an individual aged over 55 to put $300,000 into superannuation – or $600,000 as a couple,” said Mr Blythe. That is a great way to generate income and also very tax effective.”
Lastly, the term downsizing has acquired negative connotations – suggesting a more modest way of life or a loss of space and security. Many commentators prefer the term rightsizing, which they say better describes the transition from a family home into something more suitable.
Journalist Melissa Gerke says that rightsizing gives older people the chance to include lifestyle perks such concierge services, sauna rooms and yoga studios – plus plenty of room for entertaining and guest bedrooms.
“The over-55s are increasingly blurring the lines between downsizing and rightsizing, turning away from the humble one-bedroom home in favour of compact opulence,” she said.
“They’re selling the family home and moving into luxury apartments in a more desirable location.”
Sources:
[1] National Seniors
[3] Downsizer
[4] Domain