Time to read : 4 Minutes
Is Downsizing A Path To Financial Freedom
Housing affordability in Australia is among the worst in the world. That’s according to a 2022 report that ranked Sydney as the second most unaffordable housing market on the planet. Melbourne came in at number five, and Adelaide, Brisbane and Perth were all in the top 20.
🏠 So there’s little wonder why many Aussies are considering cashing in their housing chips to downsize to a smaller property.
🤔 From the tiny living trend, to families suffering under rising mortgage interest rates, and retirees packing up their empty nest, is it worth downsizing your home to take the pressure off yourself?
The five key signs that you’re ready to downsize
Whether you have unused space, are feeling mortgage stress, or want a lifestyle makeover, here’s why some people are choosing to buy smaller.
1. You don’t use the space
Do you have a perpetually empty spare bedroom or two? What about a games room that’s just gathering dust? Or a large backyard that you spend more time mowing than enjoying? If you have unused indoor or outdoor space, then it could be time to consider downsizing.
2. Rising interest rates are hurting
Interest rates have been going up – and fast. Australian homeowners have experienced the fastest pace of interest rate increases in almost 30 years. And there could be more rate rises to come. Downsizing to a smaller, less expensive property could help to relieve some mortgage stress.
3. Your maintenance costs are spiralling
Large houses often come with large maintenance bills. Whether you’re paying through the nose to maintain an ageing family home, or the reno you dreamed about has become a money pit, downsizing to a smaller home could allow you to redirect that cash into a holiday instead.
4. Your home is no longer practical If your needs have changed since you purchased your home, a property rethink could be in order. Maybe your garage three flights down is starting to drive you mad. Or perhaps the huge workshop that originally caught your eye has just accumulated junk.
5. You want to be closer to the city
Feel like you’re in need of a lifestyle makeover? Trading in that big house in the suburbs for an apartment closer to the city could be just the ticket. Whether you’re craving cafe culture or just want to be closer to work, giving up space can come with fringe benefits.
Do your sums
Before you knock up a ‘for sale’ sign, there are some hidden costs of downsizing that you may want to factor into your plans.
You’ll likely need to engage a solicitor or conveyancer to handle the paperwork involved in selling your home. You may need to budget between about $800 and $2,000.
Your real estate agent’s commission will likely be between about 1.6% and 4% of the total selling price of your home.
Buying your new house also comes with some extra costs. Pest and building inspections, stampy duty, a mortgage transfer fee and conveyancing can all bite into your budget.
Be aware: The marketing costs of selling your house may not be included in your agent’s commission. It can be worth getting this straight when you’re comparing agents.
So what are the cons?
Downsizing may not be right for everyone. It comes with financial and time costs, and can be emotional too.
Let’s face it, moving house is a hassle. There’s the financial expense, time cost and even emotional toll that comes with a major life change.
Downsizing to a less expensive house also means you might miss out on some capital gains when the property market increases. It can also be tougher to get back into the market if you change your mind.
With less space available in a smaller house, you may need to downsize your possessions. That could mean saying goodbye to some of your favourite furniture, clothes, keepsakes or vehicles.
The bottom line
The federal government is sweetening the downsizing deal for pensioners. New legislation gives pensioners an additional 12-month asset test exemption on their home sale proceeds.
🔨 That means you’ll have more time to purchase, build, rebuild, repair or renovate a new principal home before your pension is affected.
💡 But, downsizing isn't just for pensioners, it can be the right move for people who want less or no debt too.
🌈 And for some people – like Peter – less really is more. Downsizing can mean less financial stress and more control over your lifestyle. “My partner and I sold our house, and with the profit from the sale we bought some land on the far south coast of NSW and built a small cabin. It is much smaller than our old house, but with no mortgage or rent to pay, we are no longer tied to nine-to-five jobs and can choose how much we work. For us, the freedom downsizing has given us is well worth the space sacrifice.” – Peter, 41
Less financial stress sounds amazing doesn't it?
