Older Australians to ‘downsize sooner’: CEO

Worsening financial conditions will motivate elderly home owners to downsize sooner than expected, according to a non-bank lender.

Bridgit chief executive Aaron Bassin has predicted that the current economic environment will trigger property movement throughout the year in order to free up equity to support them through the cost-of-living crisis, avoid increased mortgage repayments, and “live the lifestyle they are looking for”.

Currently, home owners over the age of 55 can make tax-free contributions of up to $300,000 to their super funds when selling a home that they’ve owned for over 10 years. Those funds would then be available to be withdrawn tax-free post-retirement.

Last year, the government introduced an additional 12-month asset test exemption in an effort to “minimise the burden” of downsizing for senior Australians, while freeing up housing stock for younger families.

“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,” Mr Bassin said.

Mr Bassin further suggested that this would give rise to a younger demographic of downsizers, particularly those who are facing the looming mortgage cliff as well as those who are at risk of no longer being able to service their loans.

The CEO’s comments follow research that revealed more than 600,000 households planned to downsize to smaller properties between June 2022 and 2023 and in response to inflation peaking at 7.8 per cent over the past year.

Furthermore, Mr Bassin referred to research conducted by Roy Morgan that revealed mortgage stress had hit its highest levels in a decade, with interest rate rises putting 23.9 per cent of mortgage holders “at risk” and 15 per cent “extremely at risk” of mortgage stress.

“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,” Mr Bassin stated.

“But not everyone will be able to or want to work for longer. Instead, we’ll see older home owners downsize sooner and take advantage of the financial incentives available to them, such as tax exemptions and recent changes to superannuation benefits.”

According to Mr Bassin, Bridgit’s own research found that 70 per cent of home owners felt pressured 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,” he said.

Speaking to Mortgage Business sister brand The Adviser, co-founder and director of The Demographics Group, Simon Kuestenmacher, said that finance and mortgage brokers will “have their hands full” by the 2030s as Australia’s ageing population “frees up” high demand for two to three-bedroom homes.

Mr Kuestenmacher also stated that Millennials “after procrastinating for so long” are seeking those dwellings as Australia’s largest generation reaches the family formation stage of the life cycle.

“That means all of a sudden, the small, probably rented hipster apartment in the inner suburbs of Surry Hills of Fitzroy Brunswick got a bit too small because we had 1.7 kids,” Mr Kuestenmacher said.

“This desire to live in a large home now has gone up like crazy and this will be with us for another 12–13 years because that’s how many Millennials are left in our inner cities.”

Leave a comment

Your email address will not be published. Required fields are marked *