• The pension age, which was 65 just five years ago, is set to increase to 67 this July.
  • Australians are working for longer, to build super and support higher costs of living.
  • Over-55s selling a home can make tax-free contributions of $300,000 to their super.

Worsening conditions this year will trigger older Australians to downsize sooner, while giving rise to a new, younger demographic of ‘downsizers’, predicts Aaron Bassin. These are the Australians who could soon be facing mortgage stress and are at risk of no longer being able to service their loan.

Aaron Bassin is the CEO and co-founder of Bridgit, a tech-driven non-bank lender revolutionising property lending. He cites rising cost of living, interest rate rises and inflation as the reason older Australians will bring forward their downsizing plans to access the equity tied up in the value of their property.

The changes to tax-free contributions for over-55s, the pension age rising in July, and news downsizer legislation will also propel this forward.

Further, many homeowners coming off fixed-rate loans will face a mortgage cliff, with some backed in a corner and forced to sell. He predicts middle-aged people and families will become the new financial ‘downsizers’ as mortgage stress increases.

Pressure on for households

Consecutive interest rate rises, the soaring cost of living and the highest levels of inflation since the 1990s is putting pressure on households, but it is also providing an opportunity for older homeowners to re-assess their financial position and downsize to access their equity, freeing up stock amid a housing crisis.

Mr Bassin says: “Many older Australians are asset rich but income poor, their money is tied up in the value of their property. In the past they would have considered downsizing to a smaller property because their children had moved out and to cut down on home maintenance.

“However, with the current economic environment I believe this will change, and we will see a large cohort choose to make their downsize sooner than planned, to free up their equity in order to support them with the rising cost of living, avoid the requirements to pay an increasing mortgage and live the lifestyle they are looking for.”

600,000 to downsize

Mr Bassin’s observations are in response to research which reveals more than 600,000 households planned to downsize to a smaller property between June 2022 and 2023,[1] and inflation peaking to 7.8 per cent over the past year.[2]

Mr Bassin continues: “The pension age, which was 65 just five years ago, is set to increase to 67 this July, suggesting that Australians are working for longer, to build up their super and to support the higher cost of living. But not everyone will be able to or want to work for longer. Instead, we’ll see older homeowners downsize sooner and take advantage of the financial incentives available to them, such as tax exemptions and recent changes to superannuation benefits.”

Over-55s homeowners can make tax-free contributions of up to $300,000 to their super funds when they’ve owned a home they’re selling for more than 10 years, with those funds then able to be withdrawn tax-free at retirement.

Further, new legislation passed last year that encourages pensioners to downsize and receive an additional 12-month exemption to their social security asset test before losing or receiving reduced payments.

A time to sell…

Mr Bassin says: “The property market has been stuck with older Australians holding on to property for too long, even if it didn’t suit their lifestyle needs. Now, the economic conditions will trigger property movement.

“Bridgit’s own research found that last year, 70 per cent of homeowners felt pressure to get back into the market quickly after selling their existing property. While the new legislation will give downsizers more time to move and make the adjustments to their new home without being penalised, in a cooling property market, I envisage them doing it sooner to get the best sale price.”

Mr Bassin says the current environment will also bring rise to a new demographic of ‘downsizers’ in the market – middle-aged people and families – those who will be selling to purchase lower-value properties. He refers to research by Roy Morgan which reveals mortgage stress has risen to its highest levels since July 2013 and the environment of rate rises has put 23.9 per cent of mortgage holders ‘at risk’ and 15 per cent ‘extremely at risk’ of mortgage stress.[3]

Mr Bassin says: “A significant proportion of homeowners will come off their fixed-rate home loans between July and December and switch to variable rates; the steep and consecutive interest rate increases will see some people’s repayments double. We’ll see some unable to service their home loans and make the tough decision to sell, while others will be on the front-foot and sell sooner to avoid the hit in further rate rises in a bid to ease the financial impact it will have on them.

“It’s more important than ever to have a plan in place if you’re looking to sell and downsize. With Australia also facing a national rental crisis, those who find their next purchase and don’t have their next property move in mind will face added stress and hidden expenses. There is limited stock on the market, rent prices are surging and securing a rental is scarce. On top of that, our research from 2022 found that households pay an average of $8300 in relocation costs if they don’t secure their next property before selling to cover expenses like temporary accommodation, moving and storage costs. I see this figure increasing.”

Mr Bassin says encourages homeowners to start thinking ahead about their financial situation and how the current economic conditions may affect them. “Be prepared, plan ahead, assess your finances and start thinking about the best strategy if you need to downsize. Bridging finance may be the best solution for you to reduce the added stress and remove the hidden costs in finding and securing your next property.”


You May Also Like

Beachside bargains: Top 10 NSW suburbs for downsizing under $1m

Discover NSW’s hidden gems where coastal lifestyles and housing affordability meet.

Is Christmas FOMO leading to bad property buying decisions?

A sense of urgency could be leading to poor property buying decisions.

A growing number of buyers and renters are swiping right on digital inspections

While the option seems great for the time poor, it still misses the mark on delivering a feel for the area and scale of the home.