The Reserve Bank of Australia has raised the cash rate to 2.35 percent, the fifth consecutive rate rise, and interest rates are now the highest they’ve been in more than seven years.
This may be good news for those independent and self funded retirees who will earn more interest on their savings, but for many others approaching retirement with relatively large mortgages, it may be a trigger to sell the family home.
With more increases expected, residential property market prices are starting to slide and more properties are coming on to the market, putting downward pressure on prices.
But for many people approaching retirement it may be better to sell up sooner rather than later in order to maximize their access to the home equity they’ve built up through decades of hard work. Especially if their employment prospects are not secure, or they’re simply tired of working, the children have grown and moved away, neighbourhoods have changed and a different type of lifestyle is more attractive for a new stage of life.
Choices include a better lifestyle location, closer to friends and family, closer to a beach or golf course, a newer low maintenance development, an apartment or villa, in a new development or a community or village setting with friendly like-minded neighbours.
Downsizing.com.au CEO Amanda Graham says even now as the market is slowing, prices are higher than they’ve ever been and there’s never been a better time to consider selling. Even though the unexpected COVID pandemic property boom is ending, it’s still a great time to downsize.
“For people considering their next stage of life, their needs change and they don’t have the luxury of sitting it out waiting for another residential property market boom cycle to come round in a few years time. They’ve already ridden several property booms and profited from those anyway.”
“Older Australians often have difficulty getting and retaining a job, and really don’t want to face more mortgage stress when they are already sitting on a very valuable property. If the kids have left home, and lifestyle needs have changed, it makes perfect sense to downsize – or “rightsize” – your home, and cash in your home equity at the same time - so you can live the sort of life you want to.” Ms Graham says.
“Freeing up home equity can release money to live on for this next stage of life, it can allow people to retire from full time work sooner and live their dream lifestyle with financial security. There are so many options to choose from,” she says.
“The price differential can really benefit those considering buying into a retirement development, or even through simply changing the location or the style of property.”
“Economic uncertainty and unpredictability will continue after the pandemic but for many older Australians, it’s now time to cash up and live the dream,” Ms Graham says.
Commenting on the September rates increase, Anneke Thompson, Chief Economist at CreditorWatch says: “The Reserve Bank of Australia (RBA) is not shying away from its goal of bringing inflation back inside the target band, and today further increased the cash rate target. Retail trade, Labour Force and Business Sentiment data all point to continued ‘heat’ in the economy, even though consumer sentiment and house prices continue to weaken.
“We expect that the RBA will not hit the pause button on cash rate increases until retail trade data starts to better reflect downbeat consumer sentiment. This could happen, however, as soon as the upcoming Christmas shopping period. It is likely by December that mortgage holders will be really feeling the effects of higher repayments, and of course higher prices of everything from furniture, to eating out and to holidays,” she says.
“However, increasing the complexity for the RBA is the record low unemployment rate. NAB’s Business Conditions survey shows that businesses are operating at record capacity, which is a very good leading indicator of unemployment. Coupled with still low migration, the labour market is poised to remain tight for some time.”
“The risk is that this encourages continued high consumption, even when sentiment is low, and the RBA is forced to continue to increase the cash rate target. On the flip side, households are finally starting to work through their savings, which could start making more consumers pull back their spending.
Ms Thompson asks: “The question is will consumers be spooked enough by their savings falling to reduce their spending, even when job security is so high? Retail spending data, coupled with the now exceedingly important anecdotal data from the major retailers, will give us further insight over the next few months leading into Christmas.”
For many older Australians, downsizing – or “rightsizing” – sooner rather than later, can be the right answer. See Downsizing.com.au to learn more about the choices and options available.