There’s no doubt that rising interest rates and the cost of living are on a lot of people’s minds right now. If you’re thinking of downsizing to free up some equity and pay down debt, read on.
Is it a good time to downsize?
The best time to downsize is when you feel ready to. Other things to ask yourself are: do I have the energy? Do I have a decent chunk of time? Do I feel it’s the right thing for me at this stage of my life? What will my finances look like if I downsize? Will downsizing affect any of my government payments?
You may want to travel and have a lock-and-leave home or free yourself of your mortgage and have more cash available for expenses such as food, entertainment and bills. You may simply be feeling like your home is now too big and too much work.
Downsizing can feel like a daunting task, but it can also be liberating to move to a smaller, less demanding property. And in many parts of Australia there is currently a low volume of houses on the market, which means now is an excellent time to list your home. Despite a series of 11 interest rate rises, sellers who choose to put their home on the market are still finding buyers quickly, with the increased competition leading to higher bids and offers in many cases.
What’s more, prices are now rising again, thanks in part to the return of overseas investors. Although there is no crystal ball when it comes to property, it looks like the worst of the rate rises may be over and we are entering a period of greater stability.
In many areas there is also a shortage of family homes, so if you are looking to sell this kind of property, it’s a great time to make the move. The current rental criss, too, means that those who are in a position to buy are seeking to do so – further good news for sellers.
What are the financial benefits of downsizing?
Downsizing now will give you an opportunity to secure a good buyer while demand is high, and hopefully buy a smaller or lower-cost property before prices start to rise again more rapidly. Paying off your mortgage will mean you no longer have to worry about what interest rates are doing, and you can clear any other outstanding debt, such as car loans or credit cards.
It’s no secret that inflation is high right now and consumer spending is down, so if you’re feeling the pinch, you’re not alone. Retail sales leveled off in February, as people spent less on expensive trips and meals and went for more local experiences, as well as spending more on home entertainment. Those who can reduce their living expenses will find it easier to ride out the current economic headwinds, and downsizing is going to be the most obvious way to do that for many homeowners.
As the cost of living rises, it’s also worth thinking about building a buffer of ready cash rather than having all of your wealth tied up in a home that is too big for your needs. As a general rule, if you add up all of your everyday expenses and bills, and then add a buffer of 10-20 per cent, that is the amount you need each month to feel secure in the current financial climate.
IMPORTANT: Every situation is different, and you should always talk to your accountant or financial adviser before making any decisions.
What are my options for housing?
You may want to look for a smaller apartment or townhouse close to public transport, shops, health care and other services. Other options might include a retirement village, or a land lease community where you buy the house but lease the land it sits on. These properties can all give you greater flexibility, cost certainty and security than a big family home.
If you’ve been feeling isolated in a family home, you may also find that living in a retirement village or land lease community will give you more opportunities for social contact, particularly if there is a pool or other shared facilities. What’s more, you’ll also have less work to do, and lower running costs. So think about it today – you may wonder what took you so long!
Want to learn more about making the most of your next 30 years?
Retirement living can be the best time of your life.
We’re committed to making life better for the over 55s. Check out downsizing.com.au for more insights and great advice on living life to the fullest. We have a great range of properties for the over 55s to help you do that with like-minded people in land lease communities and retirement villages.